US auto industry hangs in the balance

The US auto industry faces a day of reckoning tomorrow, with the looming bankruptcy of auto giant General Motors and an expected court ruling on the sale of automaker Chrysler to a group led by Italy's Fiat.

The once mighty US auto industry is reeling, prompting massive intervention by President Barack Obama's administration to prevent total collapse and a new body blow to a national economy already in recession.

The government's rescue plan for GM could put as much as 72.5 per cent of the country's biggest automaker under state ownership, according to documents filed by GM last Thursday.

Government-backed restructuring in bankruptcy court for GM, once the world's largest automaker, appeared all but certain ahead of tomorrow's deadline imposed by the Obama administration on the company to submit a viable restructuring plan or file for bankruptcy.

Meanwhile, a US bankruptcy court judge in New York was widely expected to approve a deal between Chrysler and Fiat tomorrow. The third biggest US automaker has declared bankruptcy and is seeking a tie-up with Fiat in a plan presented as the only way to save the company from liquidation.

Developments at Chrysler could provide a valuable example for GM in its retructuring.

The United Auto Workers (UAW) union said last Friday its members ratified a deal to allow GM to radically cut costs and its debt load, clearing the way for a quick exit from an expected bankruptcy filing.

The deal, which will cut GM's labour costs by between one and two billion dollars a year, is one of the final pieces of what is expected to be a massive pre-packaged bankruptcy plan for the number one US automaker.

The troubled automaker also announced plans to retool an idled US plant to build small cars it had originally planned to import, and two more US assembly plants could potentially be saved. Union leaders said they would be pressing Ford and Chrysler to also build small cars in the United States.

The bankruptcy filing could also be sped up by an earlier deal that sees Canadian parts maker Magna and its Russian backers taking over GM's Opel.

The deal for GM's European operations, which came after marathon talks and was brokered by the German government, amounted to a major development in the global rearranging of the auto industry.