Washington: A deadlocked Senate has already begun debating two alternative plans, from both sides of the aisle, to rescue a tottering American automobile industry. While the Democrat plan would have Treasury secretary Henry Paulson allocate $25 billion from the $700 billion financial bailout package for the industry, the Bush administration has resisted the move and instead asked the Congress to revise a previously approved $25 billion loan package meant to facilitate long-term changes within the industry.

This does not excite GM executives who say the $25 billion loan money would come with enough conditions attached which would ensure that it cannot be used to solve their cash crisis.

The debate is now centred squarely on an industry that has been the epicentre of the American industrial economy for more than a century. The largest of the auto industry's Big Three, GM, is also the worst afflicted and is currently busy raising operating cash aimed at seeing it through a number of days, let alone weeks or months.

With a collapse imminent, if no bailout should be forthcoming, the market has already begun assessing likely damages to the economy and does not like what it sees.

While those in favour of a bailout ask for treatment similar to that accorded Wall Street, claiming the industry is equally a victim of the global financial crisis, those against point out that problems plaguing the industry are more endemic and easily predate the crisis.

Those in favour of the bailout point out that what is at stake are millions of jobs, worth more than $100 billion in wages.

Those against pushing taxpayer money in the direction of the ailing industry argue that the problems are of the industry's own making, mainly the product of uncompetitive labour agreements and vehicles that don't sell any more.

US auto companies account for only 47 per cent of domestic sales this year, according to sales tracker Autodata.

"The Big Three's financial straits are not the product of our current economic downturn, but instead are the legacy of the uncompetitive structure of their manufacturing and labour force," said Sen. Richard Shelby, Republican, Alabama, the ranking member of the Senate Banking Committee. "I do not support the use of US taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers."

Post-bankruptcy scenario
It is argued that the domino effect of a bankruptcy on an economy already slipping into recession would be just too profound.

Auto company executives point out that sale would plummet as buyers would no longer buy products from a bankrupt company fearing loss of resale value and warranties.

There is also the issue of securing financing to reorganize when already in bankruptcy. A lack of means to pay its bills would force the company to liquidate and sell assets. A failure to pay auto parts suppliers would force them into bankruptcy. Since the auto industry indulges in a lot of overlap, the closure of one parts supplier would cause GM's rivals, who source from the same supplier, to close plants as well.

Bankruptcy would also entail shedding brands and thousands of dealerships associated with them, as also closing plants and laying off tens of thousands of workers.

The Center for Automotive Research, a research centre that has been arguing in favour of a financial bailout, estimates a loss of nearly 2.5 million jobs if only half of the Big Three manufacturing capacity were to close. This is a distinct possibility should GM file for protection.

It estimates that about 240,000 of those job losses would be at auto manufacturing plants, while 800,000 would be at various suppliers and dealerships. Interestingly, the remaining 1.4 million job losses would be in sectors that rely on auto industry spending.

The deep cuts in advertising budgets affected by the Big Three are already resulting in layoffs in the media industry. Reduced spending by auto company employees will also impact stores and other businesses in cities where plants are located.

All in all the shock of such a major bankruptcy would be too much for a struggling US economy to absorb.

As for the arguments against a bailout, it is pointed out that companies from other sectors, such as airlines and steel, have survived bankruptcy - so why can't a company like GM, or any other automaker?