Industrial Editor

The prospects of at least two of Detroit’s famous “Big Three” carmakers running out of cash loom larger today after the US Senate rejected a £9 billion bail out of the country’s crisis-hit automotive industry.

General Motors, once the undisputed king of the carmakers, and Chrysler could have to file for bankruptcy protection as early as this week, experts believe.

The crisis affecting Detroit worsened after rescue talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.

The Senate rejected the bailout 52-35 on a procedural vote after the talks fell apart.

Stock markets in Asia and Europe dropped sharply after getting word of the bailout’s failure.

Politicians from both parties called for the Bush administration to tap into the $700 billion (£469 billion) Wall Street bailout to rescue the beleaguered industry.

The Bush administration has repeatedly opposed using a bailout fund being administered by the executive branch, saying it should not be used for emergency aid to the automakers because it was designed specifically to restore stability to the financial sector. Following the vote, the White House said it was studying its options.

“Due to this colossal failure by the US Senate, now it’s up to the president and the Treasury secretary,” Virg Bernero, mayor of Lansing, Michigan said.

“Working Americans will appreciate the president stepping in - and pulling us back from the economic cliff.”

Politicians, who aren’t scheduled to return to legislative work until early January, were looking to the president, as well.

“Plan B is the president,” said Senator Carl Levin, a Michigan Democrat. House Speaker Nancy Pelosi said action by President George Bush was the “only viable option”.

General Motors and Chrysler are in the most immediate danger while Ford has said it does not need federal help now, but could face collateral damage if one of its domestic rivals fell. With the economy in recession, the auto industry has struggled with lacklustre sales and choked credit markets.

Detroit’s carmakers employ nearly a quarter of a million workers, and more than 730,000 others produce materials and parts for cars. If one of the automakers declared bankruptcy it is estimated that as many as three million US jobs could be lost next year.

Toyota said on Friday that a big bankruptcy would worsen an already severe business environment, adding that it hoped for a solution to avoid such an event.

“The US auto market is shrinking rapidly,” Japan’s top manufacturer said in a statement. “A major bankruptcy would exacerbate an already difficult environment for Toyota and the industry. We hope to avoid this situation.”

The White House said it was disappointed by failure of legislation that “presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable.”

Many congressional Republicans and some economists said the companies would be best to pursue a prearranged bankruptcy that would allow them to restructure quickly. But most Democrats and the carmakers rejected that, arguing it would quickly lead to liquidation because consumers would never buy cars from a bankrupt company.

President-elect Barack Obama said an industry shutdown would have a “devastating ripple effect” on the already battered economy.

GM said in a statement that it was “deeply disappointed” that the agreement faltered. Chrysler said it would “continue to pursue a workable solution to help ensure the future viability of the company.”