More gloom for Obama as Detroit rescue plan fails

Barack Obama looks set to have another enormous problem on his plate when he finally gets to the White House in January – a flat-broke US car industry, meaning millions more Americans out of work and the city of Detroit even more beleagured than it is already, not to mention the effects on the rest of the US economy.

Stock markets fell across the world after the collapse in the Senate on Thursday night of the proposed $14 billion bail-out for Detroit's big three – General Motors, Chrysler and Ford – when Republicans refused to support the Bill proposed by Obama and fellow Democrats, and endorsed by the White House. The Senate vote was 52-35, well short of the 60 needed to pass the rescue package.

The sticking point was a guarantee demanded by Republicans that the United Auto Workers agree to steep pay cuts next year to bring their rewards into line with Japanese car workers. The UAW refused to accept cuts before the end of their current contract, due to expire in 2011. Senate majority leader Harry Reid said afterwards that it was "a loss for the country" and that he "dreaded" looking at the results on Wall Street on Friday. Other senators were in tears.

It is now possible that Chrysler and GM will go to the wall by the end of December and that Ford will follow soon after – well before Obama becomes president and the new senators, voted in on November 4, are able to their seats and force through a new rescue package.

The alternative is that Treasury Secretary Hank Paulson dips into the rescue funds earmarked for bankers and distributes some of that money to the carmakers.

The President-elect said on Thursday: "We cannot simply stand by and watch this industry collapse." If that happened, he said, there would be a "devastating rippling effect throughout our economy."

House Speaker Nancy Pelosi described the Republican obstruction of the Bill as "irresponsible," claiming that "the consequences of the Senate Republicans' failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry."

A recent New York Times editorial is similarly gloomy. "If the Detroit carmakers are going to survive, they will have to completely overhaul the way they do business," it said. "For that, they are going to need new leadership, a rational assessment of their long record of failure and, yes, a much larger infusion of government cash." That cash injection is now up to Obama and his cabinet – if it is not too late.

FIRST POSTED DECEMBER 12, 2008