Auto Bailout Falls Apart, Is Bankruptcy Far Behind?

GOP Senators Halt Bill; GM, Chrysler at Mercy of White House

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WASHINGTON (AdAge.com) -- A $14 billion congressional rescue plan for at least two of the Big Three automakers fell apart last night over GOP senators' demands for union wage cuts. Failure of the bill could send General Motors and Chrysler heading toward bankruptcy court.

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The Senate abandoned work on the bailout package after failing to get enough votes to close off debate. Senate Majority Leader Harry Reid, D-Nev., immediately urged President George W. Bush to use funds from the $700 million Wall Street bailout to help automakers.

He also ripped into his Republican counterparts. He said their insistence on unreasonable major wage cuts torpedoed the bailout. "By rejecting every good-faith bipartisan compromise -- including those from the White House and Sen. Bob Corker [R-Tenn.] -- it is now abundantly clear that Republicans have no interest in keeping the Big Three from collapsing," said Mr. Reid. "Because Republicans failed to act, 3 million Americans are more likely than ever to lose their jobs and our economy is at risk of suffering even greater damage."

Speaking on the Senate floor yesterday afternoon, Republican Leader Mitch McConnell, citing the industry's history of problems, said, "We simply cannot ask the American taxpayer to subsidize failure." He took specific issue with the so-called car czar -- the government-appointed official who would oversee "rescued" auto manufacturers. Mr. McConnell said the positions "has nearly unlimited power to allocate taxpayer dollars but limited ability to force the kinds of tough concessions that long-term viability would require."

He went on to praise the Corker amendment, which would require "that labor costs at participating companies be brought on par with companies like Nissan, Toyota, and Honda -- not tomorrow but immediately -- because it is delusional to think that a company which spends $71 per labor hour could compete with a company in the same industry that spends $49."

The reference, of course, was to union contracts at the domestic automakers. Indeed, talks eventually fell apart -- despite Mr. Corker's efforts -- because Mr. McConnell wanted the United Auto Workers' to set a "date certain" for that "parity pay." "The sticking point that we are left with is the question of whether the UAW is willing to agree to a parity pay structure with other manufacturers in this country by a date certain... It is upon that issue that we've reached an impasse."

In a statement, the UAW said that "it was prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. ... Unfortunately, Senate Republicans insisted that this had to be accomplished by an arbitrary deadline. This arbitrary requirement was not imposed on any other stakeholder groups. Thus, the UAW believed this was a blatant attempt to make workers shoulder the lion's share of the costs of any restructuring plan."

UAW President Ron Gettelfinger said at a press conference today there's nothing the union could do to keep GM or Chrysler "limping" into the new year and that they will either end up in bankruptcy court or liquidation.

GM said it was "deeply disappointed."

"We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis," the company said in a statement. GM today said it hired a bankruptcy lawyer.

Chrysler had hired a bankruptcy lawyer on Dec. 5 "to provide a comprehensive independent analysis of the various options available to the company."

"Chrysler LLC is obviously disappointed in what transpired in the Senate and will continue to pursue a workable solution to help ensure the future viability of the company."

The White House, too, said it was disappointed and added that it may use funds from the Wall Street bailout to help the automakers.

"It's disappointing that Congress failed to act tonight," a White House statement said. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable."

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