The US Senate failed to vote through a $14 billion bailout proposal for GM and Chrysler last night in a move that could sink both firms.
Republican opposition to the House of Representatives bill had been mounting in the Senate, and the package was eventually thrown out by a 52-35 vote.
"We have worked and worked and we can spend all night tonight, tomorrow, Saturday, and Sunday, and we're not going to get to the finish line," said Senate Majority Leader Harry Reid. "That's just the way it is. There's too much difference between the two sides."
Before the vote, it emerged that General Motors had already hired a team of lawyers and bankers to work out whether the car maker would be better served applying for Chapter 11 bankruptcy protection.
This morning shares in London plummeted 180 points on the back of the US deal collapsing.
If GM and Chrysler do go bankrupt, the knock-on consequences for Ford will be extremely disruptive. Its key tier one suppliers are likely to go out of business.
Asian car companies - including Toyota, Honda and Nissan, whose shares have all taken a battering as a result of this – are concerned that, if GM and Chrysler collapse, the market could be flooded with cheap cars.
A glimmer of hope for GM and Chrysler comes from the White House.
In an effort to urge sceptical congressmen to pass the bill, Bush administration officials briefed that if Congress didn’t act, the White House may have to step in order to save jobs.
Bush could siphon funds from the Troubled Asset Relief program, and this loan could be offered to the car makers with much fewer restrictions than the Congress package.
Private conversations are understood to be continuing behind the scenes.