Stalled carmaker bailout sends Wall Street reeling
Big boost in initial unemployment claims and surprise gain in trade deficit didn't help.
NEW YORK - Wall Street's anxiety about Detroit's automakers sent stocks sharply lower yesterday as investors grew fearful that a bill to rescue the companies wouldn't make it through the Senate.
Then late last night, negotiations for the $14 billion in loans to cash-starved General Motors Corp. and Chrysler L.L.C. collapsed. Senate Majority Leader Harry Reid (D., Nev.) said he was "terribly disappointed" about the demise of an emerging bipartisan deal to rescue Detroit's Big Three.
Reid called the bill's collapse "a loss for the country," adding "I dread looking at Wall Street . . . it's not going to be a pleasant sight."
Wall Street had been betting Washington would extend a lifeline to the automakers and even recovered early yesterday from a sell-off at the opening bell that followed the unemployment report and a surprise increase in the nation's trade deficit. America's trade deficit rose unexpectedly to $57.2 billion in October from $56.6 billion in September as the global recession dampened sales of U.S. products in foreign markets and the volume of oil imports surged.
Lawmakers opposed to the auto bailout have argued that government support should require significant cuts in wages and benefits for autoworkers. That was the issue that couldn't be bridged and ended the talks last night.
The House had approved the plan late Wednesday on a vote of 237-170 to infuse money within days to the two struggling automakers. Ford Motor Co. has said it does not need aid.
Robert Froehlich, chief investment strategist for DWS Investment GmbH, contended that a failure of the auto bailout would trigger a reaction similar to what occurred when the government's financial-sector rescue plan did not make it out of Congress on the first try. The Dow tumbled 777 points Sept. 29 as the plan failed an initial House vote.
Also yesterday, the government reported a surprise jump in weekly unemployment claims, nearly a week after it said the nation's unemployment rose to a 15-year high in November.
The Dow Jones industrial average fell 196.33, or 2.24 percent, to 8,565.09. The broader Standard & Poor's 500 index fell 25.65, or 2.85 percent, to 873.59, and the Nasdaq composite index fell 57.60, or 3.68 percent, to 1,507.88.
The Russell 2000 index of smaller companies tumbled 25.19, or 5.29 percent, to 451.21 as investors looked for the safety of larger companies expected to fare better in a weak economy.
Oil prices surged 10 percent as the dollar weakened and as investors hoped for a significant OPEC production cut next week to boost the market. Light, sweet crude jumped $4.46 to settle at $47.98 a barrel on the New York Mercantile Exchange.
Chevron Corp. rose $1.02, or 1.30 percent, to $79.46 after the jump in oil, while Hess Corp. advanced $3.02, or 6.76 percent, to $47.71.
Automakers declined yesterday. GM fell 48 cents, or 10.43 percent, to $4.12, while Ford fell 35 cents, or 10.77 percent, to $2.90. Chrysler is not publicly traded.
Financials fell amid worries about their balance sheets. U.S. Bancorp warned that it was earmarking more than $1 billion in the fourth quarter for bad loans. U.S. Bancorp fell $2.82, or 10.19 percent, to $24.85. JPMorgan Chase & Co. fell $3.58, or 10.68 percent, to $29.94, while Wells Fargo & Co. declined $3.29, or 11.27 percent, to $25.90.