The US Senate has rejected the £9.4 billion emergency loan offer to rescue General Motors, Ford and Chrysler.
The final stumbling block came from the UAW workers union which refused to have wages cut to meet the same level as non-unionised workers by 2009.
The rejection means GM and Chrysler will now be struggling to look for the money it needs to stay solvent this month.
Ford was not asking for an immediate hand out. However, its request for a 10-year bridging loan has been rejected.
GM and Chrysler may not be able to wait until next month without seeking bankruptcy protection.
GM said in a statement: “We are deeply disappointed that an agreement could not be reached tonight in the Senate despite the best bipartisan efforts.
“We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.” Chrysler’s own statement echoed GM’s.
If GM does go into Chapter 11 bankruptcy protection, UK operations are unlikley to be affected as the US government will have to fund all subsidiary operations while the holding company is restructured.