The fate of General Motors and Chrysler hung in the balance last night as Republican opposition to a $14 billion (£9.3 billion) bailout of America’s car industry grew.

In a potentially fatal blow for the carmakers, Mitch McConnell, the Senate Republican Leader, said that he was opposed to using federal funds to save the automobile firms despite urgent pleas from President Bush and Barack Obama.

As a sign of increasing desperation, it emerged last night that General Motors has already hired a team of lawyers and bankers to work out whether the carmaker should throw in the towel and apply for Chapter 11 bankruptcy protection.

For the car manufacturers to receive the emergency state aid, a finance Bill has to clear two major legislative hurdles before it can be signed off by Mr Bush. While the Bill successfully passed through the House of Representatives on Wednesday evening, it has still to be voted on in the Senate.

Last night it appeared that the Republicans had more than enough votes to block the rescue package. Democrats spent much of yesterday lobbying their counterparts on the other side of the political divide on Capitol Hill, desperate to secure the 60 votes needed to force the Bill through.

In a grim sign, there had been no vote scheduled in the Senate by yesterday afternoon, indicating that Democrats were still well short of the support they needed. The Democrats, led by Mr Obama, are anxious that General Motors and Chrysler should not be allowed to fail.

The car industry provides three million jobs across the country in manufacturing, suppliers and dealerships. At present 6.7 per cent of the American workforce is out of a job and the unemployment rate is rising at its fastest pace for more than 20 years. It could feasibly hit 7 per cent before Mr Obama takes office on January 20.

Harry Reid, the Democratic Senate Leader, challenged Republicans yesterday to offer an alternative rescue measure. He said: “I think it is only fair, if the minority, the Republicans, want a better Bill, they should offer an alternative.” But as politicians on both sides bicker, time is running out for GM and Chrysler. Both have given warning that they might run out of cash by the end of the year without a federal loan. In that event, they would have to file for Chapter 11 bankruptcy protection, which temporarily staves off creditors while distressed firms slash costs and try to work out how to survive.

However, it is widely believed that should they enter Chapter 11, they would go bust rapidly because customers would be nervous of buying a new car from a company that might not survive long enough to honour warranties and servicing obligations.

Ford, the most financially robust of America’s big carmakers, has said that if GM and Chrysler file for Chapter 11, it will be dragged down too.

Ford believes that the collapse of one of its rivals would trigger the failure of other related industries, such as part suppliers, on which Ford relies. In that event, Ford has requested a $9 billion credit facility from Washington that it would need to draw on in the event of General Motors or Chrysler going bust.

The bailout Bill would in effect provide legislation allowing the carmakers to tap into a federal loan that had been earmarked to pay for green modifications for new vehicles.

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