US Senate fails auto rescue, Asia stocks tumble
US Senate fails to agree on auto rescue, Asia stocks tumble
By Jonathan Underhill
Dec. 12 – The U.S. Senate failed to reach a compromise on the US$14 billion plan to bail out the auto industry. Stocks tumbled in Asia on the news and the price of oil dropped.
Senate Majority Leader Harry Reid said there was “too much difference” on the proposal to reach an accord. General Motors and Chrysler have said they will run out of cash by March if they don’t get federal aid.
Japan’s Nikkei 225 Index fell 5.8% and in Hong Kong, the Hang Seng fell 6.3%. Crude oil dropped by almost US$2 a barrel to US$46.11. S&P 500 futures slumped 21%.
The impasse raises the prospect that two of America’s most iconic companies will be allowed to fail. Because of the rate GM and Chrysler are burning cash, the decision couldn’t wait for President-elect Barack Obama’s inauguration in January.
“This puts the prospects of a rebound further out,” said Paul Richardson, who manages about NZ$150 million at BT Funds Management. “It may mean more write-downs and a longer-term impact on the U.S. economy.”
GM, Ford and Chrysler employ nearly 250,000 workers and a further 100,000 work for companies that supply parts. GM and Chrysler have said they may fail without government help as the credit squeeze and a slump in consumer sentiment erodes sales. They’ve also lost ground to Japanese and Korean automakers who have produced smaller, more fuel-efficient models, with better reliability ratings.