Wall Street was last night anticipating that at least one of America's Big Three carmakers will file for bankruptcy protection within weeks after bail-out plans for the country's near-bust car industry were left in tatters.
General Motors shares sank to their lowest level since 1938 at one point yesterday amid a showdown between the outgoing Republican Administration under President Bush and the incoming Democrat Administration led by Barack Obama, the US President-elect who takes office on January 20.
While both sides of Capitol Hill bickered over the terms and conditions of a possible $25 billion (£16.8 billion) emergency loan, Wall Street traders became convinced that Washington will fail to devise, vote on, and force through rescue funds in time to save General Motors, Chrysler, and Ford.
General Motors and Chrysler have both said this week that they require immediate federal aid to survive because car sales have collapsed in the US. Lack of consensus in Washington over how to help the car companies has left some on Wall Street certain that all three could file for Chapter 11 bankruptcy protection before the end of the year.
Shares in General Motors swung wildly as lawmakers argued over the plans. Early in the day, GM jumped 40 per cent before sliding to trade up 3 per cent in after hours trading at $2.88. At that price, Wall Street is valuing the company at just $1.76 billion – far less than the amount of cash it holds on its books. Shares in Ford – which has said it has enough cash until April – fell 4 per cent in after-hours trading at $1.33.
Yesterday morning, a handful of senators from the states of Michigan, Ohio and Missouri, drawn from both Democrat and Republican parties, said that they had agreed to present a Bill to lawmakers in Washington to allow the car companies access to $25 billion of emergency funds.
The three states represent the traditional car manufacturing heartland of America and benefit from the bulk of the 3 million jobs that the US car industry provides across the country. Under the senators' plans, their proposed Bill would allow the car groups to use the money for basic operating costs and access the cash quickly.
Later in the afternoon, Nancy Pelosi, the Democrat Speaker of the House of Representatives, effectively vetoed any speedy arrangements to vote on such a Bill by insisting that the three carmakers must present feasible business plans to Washington, explaining how they proposed to recover and pay the federal loan back.
She also indicated that she has no plans to timetable a vote on any Bill until next month. After Ms Pelosi's statement, President Bush urged lawmakers to pass emergency legislation as soon as possible. A spokesman for the White House insisted: "Their plan provides assistance from already-appropriated funds, and has strong taxpayer protections."
