What was the proposed deal?

The Big Three American car manufacturers, all based in Detroit, warned they would collapse imminently unless Washington stepped in with a bailout worth $34 billion – although a compromise figure of $14 billion (£9.3 billion) was put to Congress.

General Motors, Ford and Chrysler had already received loan guarantees worth $25 billion in September but they came back to Washington this month to beg for more. The heads of the three companies did not help their cause by arriving to ask for the taxpayers' money in their own separate private jets.

GM, which owns Vauxhall in the UK, said it needed $12 billion in loans and another $6 billion line of credit. Chrysler said it needed a loan of $7 billion. Both companies claimed they may not survive the month without the government handout. Ford said they were in a better position but would like $9 billion in loans to use if necessary.

The collapse of the companies could mean the end of the US car industry, one of the few remaining blue collar businesses in the country, and the loss of tens of thousands of jobs. More than 5,500 people are also employed by Vauxhall in the UK.

President Bush and his successor Barack Obama came out strongly in favour of the rescue package and, in the hours before the Senate vote, Mr Obama was urging both parties to pass the bill.

What were the sticking points?

The House of Representatives passed the bailout package but it collapsed in the Senate last night when the Republicans blocked the deal, preventing the required 60 votes.

The White House attempted to persuade Republicans to back the multi-billion dollar package but any hope of a last minute reprieve failed when talks were deadlocked over the union’s refusal to accept severe cuts in pay and benefits next year.

Senator Mitch McConnell, the Republican leader, said: “None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.” Many Republicans are loath to use American taxpayer’s money to temporarily prop up industries that they say are bust.

What happens next?

If the American car industry collapses the shock waves throughout the global economy would be devastating.

The desperate bid to save the carmakers from insolvency has seen a number of last-ditch scenarios suggested. The Bush Administration is under pressure to find the money unilaterally in order to keep the industry alive over the next few months.

Nancy Pelosi, the House Speaker, called on the administration to transfer funds from the existing $700 billion bailout to carmaker, but Treasury officials insist that the unallocated $15 billion in the fund is required to back up the spending which is propping up the American financial industry.

There have also been appeals to the Federal Reserve to step in and help resuscitate the ailing industry. Democrats have argued that it does have the authority to save the carmakers from bankruptcy.

It emerged last night that General Motors have already hired a team of lawyers and bankers to consider filing for bankruptcy protection. It is feared that any such move would leave consumers unwilling to risk buying a car with no guaranteed warranty or service in the future thereby finishing off the company.

GM and Chrysler issued statements last night insisting that they would continue searching for solutions to keep themselves afloat but without help from Washington their futures look bleak.

Ford, the most financially secure of the three, has said that if GM and Chrysler file for bankruptcy protection, it will be dragged down with them.

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