BUSINESS

Auto Bailout Failure Could Mean The End For GM, Chrysler

01/11/2009 05:12 am ET | Updated May 25, 2011

The failure of the auto bailout in the Senate could mean the collapse of GM and Chrysler by the end of this month, according to several reports.

The New York Times reported that GM already had legal advisers looking into a possible bankruptcy:

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy....

G.M. and Chrysler issued statements expressing disappointment. G.M. said: We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis." Chrysler said it would: "continue to pursue a workable solution to help ensure the future viability of the company."

Earlier in the day, G.M. confirmed that it had legal advisors -- including Harvey R. Miller of the firm Weil Gotshal & Manges --to consider a possible bankruptcy, which the company until now has said would be cataclysmic not just for G.M. but for Chrysler and Ford as well. The rescue plan approved by the House on Wednesday by a vote of 237 to 170 would have extended $14 billion in loans to the troubled automakers and required them to submit to broad government oversight directed by a car czar to be named by Mr. Bush.

The Wall Street Journal reported that hopes now rested on the Treasury opening up some of the $700 billion Wall Street bailout fund to give the two automakers emergency loans. In addition, the paper reports that GM is pulling out all the stops to revive the once-mighty corporation:

General Motors Corp. and Chrysler LLC, which have said they can't last the year without federal aid, both hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund, people familiar with the matter said. Mr. Reid also urged that option.

To date, the administration has resisted the idea. But "that may be where they go next," said Sen. John Thune (R., S.D.). There is always a chance Congress will act sooner if one of the companies totters on the brink, although that possibility appears remote...

GM and its dealers are meeting late this week to discuss launching a new advertising campaign to spark sales. GM will also discuss plans for its Saturn division. One option includes putting the division into bankruptcy protection, as it is technically a separate entity.

GM executives are worrying that suppliers could tighten credit terms, and the government could swiftly recall its loans.

The company's 13-member board is subjecting Mr. Wagoner to deepening scrutiny. The board is now meeting three times per week and receiving constant updates on the financial situation.

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