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The New York stock market plunged 444 points after bail-out plans for America's near-bust car industry were left in tatters.
The Dow Jones Industrial Average sank by more than 5 per cent 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.
Wall Street has tumbled for two days in a row, having fallen 873 points since Wednesday morning, as traders braced themselves for America's car industry to collapse. The Dow Jones index, which closed at 7552.
While both sides of Capitol Hill bickered over the terms and conditions of a possible $25 billion emergency loan, the New York stock market plummeted amid fears 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. Rick Wagoner, the chairman of General Motors, this month warned that his company could run out of money by Christmas.
Lack of consensus in Washington over how to help the car companies has left Wall Street convinced that all three will file for Chapter 11 bankruptcy protection before the end of the year.
In the morning, a handful of senators from the states of Michigan, Ohio and Missouri - drawn from the 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. The funds had already been earmarked by Washington for the carmakers to use to pay for green modifications to new vehicles. Under the senators' plans, their proposed bill would allow the car groups to use the money for basic operating costs and access the cash as quickly as possible.
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 planned to recover and pay the federal loan back.
She said: "Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future, until they show us the plan, we cannot show them the money. And that is really where we are with this."
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."
The fall of the Dow Jones Industrial Index came after a torrid morning. Stocks had been hit on new data showing that around 542,000 Americans lost their jobs last week, marking the fastest rise in US unemployment for 16 years. The increase comes after companies across the US sought to drastically cut costs and sack workers as demand for American goods and services dries up at home and abroad.
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Why do you care about the Big 3 or what Americans do with our tax moneyEurope and Asia is full of subsidies and loans.It's my tax money not yours.I don't tell you what to do with yours!Right now the USA Public has a 50/50 view about the Loan not bailout.You don't look at this from a US point of view
Elenore, Detroit, USA
Debt is hanging like a necklace of death across the western world. Its sucking the life out of everything.
1930's all over again. Hatred of the money lender. Is all happened before.
M .Walker., Nr. Bromsgrove., Worcs.
These guys are dinosaurs of the 20th Century, and are not flexible enough to adapt quickly in changing time.
Only in the U.S. would socialist policies be applied to bailout the rich; surely the final nail in the coffin for a morally corrupt administration.
Paul , Vancouver, Canada
These CEOs spent years producing cars that no one wanted to buy and then flew into Washington in their private jets - to beg. Here's an idea: Sell the jets, plough the obscene bonuses for abject failure back into the company, produce a viable business plan - then beg.
Angela, Epping, Australia
In the 1970's , when fuel prices quadrupled overnight, the US motor industry was in exactly the same predicament that they are now. THey had a legislated requirement to produce a a fleet average of 30mpg for their passenger cars. The answer? SUV's of course. They had it coming, serves them right
Will, Bordertown, Australia
The US car manufacturers produce poorly designed vehicles, badly fabricated, incompetently put together heaps of trash.
They cost too much, use too much fuel and start falling apart before they leave the show room.
The Japanese, French, German, Korean, Malaysian, Indian and other makers dont.
Nick T, Brisbane, Australia
If the big 3 have to sell cars to survive,why not help the working class buy these cars by giving everyone that wants to buy a new car a 5000 dollar voucher to help buy the car,they could get it at the secretary of state dept ,give to dealer ,dealer to auto maker and automaker to gov for their money
Roger CHapin, Stanton Mi, montcalm
It's capitalist ideology that defends financial bailouts yet opposes GM Ford & Chrysler whose plants & spin-offs benefit workers & communities. Yes, they badly need streamining & have been laggards. Japanese & Germans were very smart but Detroit can catch up. Save 'em, dammit.
Gus, Tompkins County NY, USA
It would be better for US gov to give 25 bn dollars as gift to Toyota to take GM, Chysler and Ford in thier hand for free, these firms were too cought up in the day to day running of the business rather than future sustainability.
Darek Thomson, Hatfield , UK
It's time to let them go. Why would anyone buy a U.S car when you can buy a Toyota or Volkswagen. There is no comparison in terms of build qualty & fuel economy.
Chris, Innsbruck, Austria
High labour costs aren't such a problem when you have products people actually want to buy.
Bad management are to blame for the failure of these businesses. The executives in charge should look in the mirror when apportioning blame.
Stuart Midgley, Sydney, Australia
I agree with all the comments who believe that car manufacturing industry should'nt be bailed out! My argument is (actally) quit simple! This industry was NEVER interested in innovations! They, until today, believe in a market dominieering monopoly situation with the petrol producing imdustry.
Ed Muller, Villarrica, Chile
funny comments, all by people who learn by listening to media headlines; yes lets allow big3 to collapse. ooops!! they pay more in healthcare and pensions in 1 year than the bailout is worth. green and electric cars?? yep, GM is further ahead than toyoto, only if you can wait 18months for new mode
manav, london, uk
the big 3 in the US are hemereging 3 billion a month, how is 25 billion going to help, apart from keeping them afloat for a few months? They have been uncompetetive for years. Reform and downsize dramatically or die
HEENERS, BATH,
I think the carmakers' case for help would have had a lot more credibility if 1) they hadn't left it to the absolute last minute, so any help they get might not even be in time, and 2) they hadn't travelled to Washington in corporate jets to plead poverty. Off with their heads, at last, I'm afraid.
Ted, Townsville, Australia
The American Car Industry needs to go to Chapter 11 to re negotiate its ancient Labour practices. Next on the list should be the US Steel industry. Its all about time but succesive Presidents and a Gang of incompetent Executives in these Huge industries haven't had the " Guts' to do it.
Billy, Bangkok, Thailand
The reason why I think that car manufacturers shouldn't be bailed out is quite simply that electric cars are the future. Why prop up a morribund industry when a new innovative industry could benefit from investment.
Invest in new technology, invest in new businesses. Get rid of the dead wood.
Robert Ward, London, UK
What would be interesting would be to see this story on the BBC, who seem to have forgotten that the US crisis exists since Nov 4.
The odd thing is that this crisis is only understood by those concerned. If this were the 1980s, then the general public might also be aware about US job losses.
Daniel, London, UK
Lets be realistic it has nothing to do with Capitlaism or socialism and everything to do with the Big 3 motor companies failing to adjust to the new demands for smaller more fuel efficient vehicles. They have had plenty of time to prepare and have failed.Now over a million jobs are at stake.
Alastair Adams, Worcester Park, United Kingdom
Gordon Brown stated recently that if the US bailed out the American car industry, that it would be protectionism and bad news for world trade. But do you think that the German Government or the French for that matter, would let the likes of Mercedes, BMW, Renault and Peugeot go under.
Lloyd, Conwy, UK
they need to shed jobs by the bucket full. they probably need to divest their brands so that so that each individual company within say GM can live or die based on its own merits rather than living or dieing based on the fortunes of the conglomorate, it should also be easy to raise investment.
will, grimsby, uk
Funny how these capitalists run to the government when mismanagement drives them into bankruptcy. No socialism for sick children, but plenty for millionaire businessmen. How much did the CEO of General Motors make last year?
Joche, Cut Bank, Montana, USA