ss_blog_claim=bd50edc517cf0b7549fe6b5f63b6b5f8 The SLS Business Finance Blog: Auto Bailout Fails; Bank-Rescue Fund Seen as Last Resort

Friday, December 12, 2008

Auto Bailout Fails; Bank-Rescue Fund Seen as Last Resort

Reprinted from The Monitor

The Senate rejected the $14 billion bailout for General Motors and Chrysler after a 52-35 procedural vote, well short of the 60 votes required to break a Republican filibuster threat. Both General Motors and Chrysler have said they could run out of cash within weeks and have few options left.

The Wall Street Journal reports today (12/12) that GM has tapped a team of bankruptcy and restructuring professionals in an apparent signal the company is preparing for the worst. GM reportedly hired bankruptcy veteran Harvey Miller of Weil Gotshal & Manges as well as restructuring veterans Jay Alix of Alex Partners, William Repko at Evercore Partners, Blackstone Group's Arthur Newman and attorney Martin Bienenstock at the firm of Dewey & LeBoeuf.

Ford has said it does not need federal help now, but could face collateral damage if one of its domestic rivals fell. With the economy in recession, the auto industry has struggled under the weight of lackluster sales and choked credit markets. GM's shares dropped as much as 39% in early trading as talks failed in a dispute with Republicans over how quickly union wages should be cut.

The United Auto Workers union refused demands for aggressive wage reductions. The Bill's demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion bank-rescue fund. Bloomberg, citing data from the Center for Automotive Research, noted in a related story the job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing GM in a statement said it is "deeply disappointed that agreement could not be reached despite the best bipartisan efforts. We will continue to pursue a workable solution to help ensure the future viability of the company", the automaker said.

Editor's Note: The only source of funds available to help the automakers now if a revised version of the bill does not pass is some of the $700MM under the TARP program that was targeted for Wall Street firms.

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