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US car firms 'should go bankrupt' US car firms 'should go bankrupt'
(about 1 hour later)
The United States's biggest carmakers should be allowed to go bankrupt, a leading US politician has suggested.The United States's biggest carmakers should be allowed to go bankrupt, a leading US politician has suggested.
Republican senator Richard Shelby said that Ford, GM and Chrysler should not get a $25bn government bail-out.Republican senator Richard Shelby said that Ford, GM and Chrysler should not get a $25bn government bail-out.
Mr Shelby said this would avoid factory closures and job cuts, and would just be "life support".Mr Shelby said this would avoid factory closures and job cuts, and would just be "life support".
He called for the car firms' bosses to quit and for the companies to file for bankruptcy protection, so they could carry out much-needed reforms.He called for the car firms' bosses to quit and for the companies to file for bankruptcy protection, so they could carry out much-needed reforms.
Job lossesJob losses
Mr Shelby made his remarks a day after chief executives from Ford, GM and Chrysler, appeared before the Senate's banking committee.Mr Shelby made his remarks a day after chief executives from Ford, GM and Chrysler, appeared before the Senate's banking committee.
Mr Shelby has opposed proposals to use government money to bail-out the "Big Three" carmakers because he does not believe such a move would be effective.Mr Shelby has opposed proposals to use government money to bail-out the "Big Three" carmakers because he does not believe such a move would be effective.
"I don't think they have immediate plans to change their model, which is a model of failure. I believe their best option would be some type of Chapter 11 bankruptcy," he said."I don't think they have immediate plans to change their model, which is a model of failure. I believe their best option would be some type of Chapter 11 bankruptcy," he said.
He also called for senior management changes, saying "these leaders have been failures and they need to go".He also called for senior management changes, saying "these leaders have been failures and they need to go".
CHAPTER 11 BANKRUPTCY Part of the US Bankruptcy Code giving troubled firms time to reorganiseUnder Chapter 11 a bankrupt business can carry on under existing managementIt prevents prevents creditors from forcing a firm into liquidation and selling off its assets CHAPTER 11 BANKRUPTCY Part of the US Bankruptcy Code giving troubled firms time to reorganise themselvesUnder Chapter 11 protection a bankrupt firm can carry on trading under existing managementIt prevents creditors from forcing a firm into liquidation in order to sell-off its assets class="" href="/1/hi/magazine/7642138.stm">Layman's credit crisis glossary
The carmakers' top executives and auto workers union president Ron Gettelfinger have returned to Congress on Wednesday, appearing before a House committee to plead for help again.The carmakers' top executives and auto workers union president Ron Gettelfinger have returned to Congress on Wednesday, appearing before a House committee to plead for help again.
General Motors chief executive, Rick Wagoner, has warned that if the US car industry failed, it could lead to a loss of three million jobs within the first year and ripple throughout communities around the country.General Motors chief executive, Rick Wagoner, has warned that if the US car industry failed, it could lead to a loss of three million jobs within the first year and ripple throughout communities around the country.
"This is all about a lot more than just Detroit. It's about saving the US economy from a catastrophic collapse," he said."This is all about a lot more than just Detroit. It's about saving the US economy from a catastrophic collapse," he said.
Political oppositionPolitical opposition
However, the $25bn rescue plan is opposed by the Bush administration and Republicans in Congress who are reluctant to take the money from the Treasury's $700bn bank bail-out scheme.However, the $25bn rescue plan is opposed by the Bush administration and Republicans in Congress who are reluctant to take the money from the Treasury's $700bn bank bail-out scheme.
Republicans and Democrats from states with big interests in the car industry have worked to develop a political compromise that could quickly aid the industry before the end of the year, but wider support is sparse.The US car industry is in need of resuscitationRepublicans and Democrats from states with big interests in the car industry have worked to develop a political compromise that could quickly aid the industry before the end of the year, but wider support is sparse.The US car industry is in need of resuscitation
Critics have argued that many of the industry's problems have been self-made, citing their past reliance upon gas-guzzling trucks and SUVs and their opposition to tougher fuel-efficiency regulations.Critics have argued that many of the industry's problems have been self-made, citing their past reliance upon gas-guzzling trucks and SUVs and their opposition to tougher fuel-efficiency regulations.
Chrysler's chief executive, Bob Nardelli, rejected suggestions that the carmakers should seek Chapter 11 bankruptcy protection.Chrysler's chief executive, Bob Nardelli, rejected suggestions that the carmakers should seek Chapter 11 bankruptcy protection.
"We just cannot be confident that we will be able to successfully emerge from bankruptcy," he said."We just cannot be confident that we will be able to successfully emerge from bankruptcy," he said.
Financial troublesFinancial troubles
GM has warned it could run out of cash in a matter of weeks and cannot wait until President-elect Barack Obama - who has promised to help the industry - is sworn in in January.GM has warned it could run out of cash in a matter of weeks and cannot wait until President-elect Barack Obama - who has promised to help the industry - is sworn in in January.
On Tuesday, Treasury Secretary Henry Paulson also resisted diverting funds to the US car industry.On Tuesday, Treasury Secretary Henry Paulson also resisted diverting funds to the US car industry.
Democrats have so far rejected the option favoured by the White House and Republicans, which is to let the industry use a $25bn loan programme designed to help the companies develop more fuel-efficient vehicles.Democrats have so far rejected the option favoured by the White House and Republicans, which is to let the industry use a $25bn loan programme designed to help the companies develop more fuel-efficient vehicles.
The car industry's problems are not limited to the US. Toyota has said it will shut down all of its North American factories for two days next month.The car industry's problems are not limited to the US. Toyota has said it will shut down all of its North American factories for two days next month.
European car companies have asked for 40bn euros (£33.5bn; $50.6bn) of soft loans for the industry.European car companies have asked for 40bn euros (£33.5bn; $50.6bn) of soft loans for the industry.


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