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US car firms 'should go bankrupt' US car bail-out compromise sought
(about 2 hours later)
The United States's biggest carmakers should be allowed to go bankrupt, a leading US politician has suggested. US politicians are looking to find a compromise plan to aid the country's crisis-ridden car industry.
Republican senator Richard Shelby said that Ford, GM and Chrysler should not get a $25bn government bail-out. Chief executives from Ford, GM and Chrysler have asked for an urgent $25bn (£16.6bn) bail-out package as a "bridge" to help them survive.
Mr Shelby said this would avoid factory closures and job cuts, and would just be "life support". Republican senator Mitch McConnell said a compromise was "the only proposal" that had any chance of becoming law.
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. Republicans and the White House are opposed to aid for the car industry coming from the $700bn bank bail-out.
Job losses Bankruptcy urged
Mr Shelby made his remarks a day after chief executives from Ford, GM and Chrysler, appeared before the Senate's banking committee. Mr McConnell said: "There is a way forward that will help protect the jobs in the auto industry, while also protecting taxpayers."
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. Democrat senator Carl Levin said an "effort" was being made to close the gap between supporters and opponents of a rescue and provide a bridging loan to Detroit.
"It would be unthinkable for Congress not to be able to reach a conclusion when the leadership of the Congress, the president and president-elect all say they support bridge loans," he said.
However, many politicians question whether public money should be used to help the car industry.
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 Layman's credit crisis glossary
Republican senator Richard Shelby said the car firms should file for bankruptcy so they could carry out much-needed reforms.
"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 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 car industry has said that without financial help, it was teetering on the brink of disaster.
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. GM has warned it could run out of cash in a matter of weeks and could not wait until President-elect Barack Obama - who has promised to help the industry - was sworn in in January.
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. The carmakers' top executives and auto workers union President Ron Gettelfinger are attending two days of hearings before Senate and House committees to plead for help.
"This is all about a lot more than just Detroit. It's about saving the US economy from a catastrophic collapse," he said. 'Catastrophic collapse'
Political opposition 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.
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. "This is all about a lot more than just Detroit. It's about saving the US economy from a catastrophic collapse," he said.The US car industry is in need of resuscitation
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 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 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.
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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