Concessions to Republican Senators Hold Key to Us Car Bail-out

The survival of General Motors and Chrysler rests on a group of hostile Republican senators as the car makers' (?10bn) bail-out, approved by the House of Representatives last night, encountered stiff opposition in the Senate.

The upper house must approve the legislation drafted by Democrat leaders in Congress, who pushed through the bill last night - by 237 votes to 170 - but have failed to win over Republicans in the Senate. GM and Chrysler have warned that they will go bankrupt this month if they do not receive $15bn in taxpayer funds.

A source close to the discussions on Capitol Hill admitted that senators opposed to the deal, most of whom are Republican and based in the southern US, might have to be handed concessions in order to pass the bill that sanctions the bail-out.

"It is likely that something has to be done to garner more Republican support," said the source, who would not be drawn on what concessions might be offered. The Senate is not expected to vote on the bill until tomorrow at the earliest as behind-the-scenes wrangling continues in Washington, with the White House expected to exert as much pressure as it can in the dying days of the Bush administration.

However, a meeting yesterday between Republican senators and the vice president, Dick Cheney, did not go well, according to hostile senators.

One of the leading Republican opponents of the bill, senator John Ensign, told CNBC today that he hoped to have the 41 votes needed to block the legislation in the Senate. The Democrats have 50 Senate seats to the Republicans' 49 and need 60 votes to approve the bill.

"We may have the 41 votes necessary to block this bill. Then we can start over," said Ensign, referring to his alternative proposal of a pre-packaged bankruptcy that would hurt creditors and shareholders but, in the ideal scenario, would resurrect GM and Chrysler as leaner, more competitive businesses. He added: "We cannot just give more money and hope for the restructuring later."

Under the terms of the bill, a "car tsar" would be appointed by President Bush to oversee the restructuring of GM and Chrysler. In return for the $15bn, the car manufacturers will hand over equity warrants – an option to buy shares at a certain price - that could see the government taking a substantial stakes in their businesses. GM, Chrysler and Ford – dubbed the Big Three – are asking for a total of $34bn including the short-term bail out. If Ford taps a $9bn credit line that it has requested from government, the three largest US car manufacturers will be part-nationalized.

The White House has used strong language when discussing the legislation, in a bid to convince rebel senators that it is not a "bridge loan to nowhere". The deputy chief of staff at the White House, Joel Kaplan, told reporters yesterday that the car tsar would recall the $15bn loans and force GM and Chrysler into bankruptcy if they did not come up with convincing restructuring plans by March 31 next year.

Doubts over the bail-out helped depress the Dow Jones industrial average in early trading this morning, as it was down 65 points at 8696. Another batch of bad economic data also hit investor confidence as the Labor Department said new claims for unemployment benefit reached their highest level in 26 years at 573,000. The number of continuing claims also jumped higher than expected, by 338,000 people to 4.4 million.

The US economy shed 533,000 jobs last month in the biggest decline in American employment since 1974.