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Yesterday the US Senate voted against passing the Auto Industry bailout plan which not only left the markets and the US Dollar dropping significantly but also asks the bigger question : What impact will this have on the recovery of the US and other global economies and of course what does it mean for the US Auto Industry altogether ?

This post looks into some of the prevailing arguments from leading experts, who do not agree on the level of impact.

ABC News comments in their latest article on the subject, “The good, the bad and the ugly : Auto Bailout Alternatives”  that:

The president-elect yesterday expressed support for an emergency loan package from Congress, but whether he would support using TARP money for an auto bailout remains unclear.

Without immediate aid, the automakers may not survive long enough to benefit from an Obama decision. General Motors has said that it could go bankrupt before the end of the year, weeks before Obama takes office. The same could be true for Chrysler, experts say. Ford is widely regarded to be in better financial health than its crosstown rivals.

The article goes on to quote auto analyst Craig Fitzgerald who firmly believes that this vote will mean that 2 if not all 3 of the Three Big will file for bankruptcy:

“If you take at face value what Chrysler and GM have said, I don’t know how they avoid a near-term bankruptcy,” said Craig Fitzgerald, an auto analyst at Plante & Moran PLLC in Southfield, Mich. “They’ve said they’re running out of money and can’t access external capital markets … I don’t see any alternative if the bridge loan does not come through and the situation is as dire as GM and Chrysler have said.”

Rebecaa Lindland, another analyst, argues that the real problem for the automakers is now the lack of confidence that the US Consumer has in any of the three big and concludes that :

“Part of the reason that we don’t see that recovery is really viable is that people have consistently said they would not buy a car from a bankrupt company,” Lindland said.

Mike McMillan says he is not at all surprised to see the US Auto Industry in shambles, on the contrary :

Nobody likes an “I told ya so.” In fact, it’s a good way to get punched in the throat. But after years of the Big Three shuffling sub-par vehicles to increasingly wary consumers, they’ve netted the likely outcome: Few are interested in shelling out their hard-earned tax dollars to companies that sold them problem-laden Citations a generation ago.

In fact, I’m surprised the Big Three have lasted this long. If it wasn’t for the patriotism of the car-buying public — which was shamelessly abused by Detroit execs — they would have collapsed following the exploding-Pinto years. It hasn’t been the first time we’ve propped up the auto industry, either. Chrysler Corp. nearly collapsed in the late ’70s, buoyed by a $1.5 billion Uncle Sam loan that was repaid following the introduction of the K-car in 1981.

McMillan does see a chance for a come-back for the industry if proper action is taken but he is disappointed and concerned over what he sees as an ignorant dogfight by politicians, too strong unions and the executives of the automakers and concludes:

What troubles me more is the politicizing this issue has received. It boils down to the Democrat vs. Republican war that deadlocks the issue and accomplishes nothing. In the end, thousands of jobs are in peril thanks to clueless execs and politicians and greedy, power-hungry unions.

I say the Big Three, with the right leadership and deals, could return to prominence. The greatest stories ever told stem from some seemingly insurmountable obstacle. But without some kind of action — the type that involves each side of the debate — we’ll be left in a far stickier situation.

Reuters quotes in their article Kim Jae-eun, economist at Hana Daetoo Securities in Seoul. for saying that this no vote by the Senate has far bigger implications than ‘just’ the US Automakers:

“If any one of them fails, it will create an endless vicious circle in the global economy as the auto sector hires so many and there are so many industries that rely on the sector,”

And is joined by Lim Ji-won, an economist at JPMorgan Chase. who agrees on such dire predictions:

“Everybody knows that a failure will badly hit the economy and financial markets. That will need much bigger stimulus packages to avoid more shocks,”

New York Times quotes Republican Leader and Senator Mitch McConnell for saying after the no vote was a reality that:

“We have had before us this whole question of the viability of the American automobile manufacturers. 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.”

Mr. McConnell added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work.”

The article goes on to quote what Nancy Pelosi, House Speaker, said in the minutes after the bailout plan was voted down:

“Senate Republicans’ refusal to support the bipartisan legislation passed by the House and negotiated in good faith with the White House, the Senate and the automakers is irresponsible, especially at a time of economic hardship,” Ms. Pelosi said in a statement.

She added: “The consequences of the Senate Republican’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options. Senator George V. Voinovich, Republican of Ohio, and a supporter of the auto rescue efforts, said: “I think it might be time for the president to step in.”

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