Senate Majority Leader Harry Reid of Nevada suggested the $14 billion wouldn't be revisited until January. "It's over with," he said.

The talks, which appeared close to a deal several times, broke off due to a sharp partisan dispute over the wages paid to workers at the manufacturing giants.

General Motors Corp. and Chrysler LLC, which have said they can't last the year without federal aid, both hope the White House will now relent and allow the Treasury to provide emergency loans from the $700 billion Wall Street fund, people familiar with the matter said. Mr. Reid also urged that option.

To date, the administration has resisted the idea. But "that may be where they go next," said Sen. John Thune (R., S.D.). There is always a chance Congress will act sooner if one of the companies totters on the brink, although that possibility appears remote.

GM, in a statement, said it is "deeply disappointed" that an agreement couldn't be reached. GM had told Congress it needs $4 billion by the end of the month or it might not be able to keep its operations going. The company added that it will "assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

GM's European division Friday said it was very disappointed that Congress failed to reach an agreement, but said it is continuing to operate as normal while cutting costs aggressively.

The package's difficulties hit Asian markets, which had posted gains this week in response to broad government efforts to help the world economy. In Tokyo, the Nikkei Stock Average of 225 companies closed 5.6 percent lower, while shares in Hong Kong fell 5.5 percent.

Mr. Reid said the Senate would be in recess, and would stand in pro forma session until January, when the new Congress will be convened with stronger Democratic majorities.

White House spokesman Tony Fratto Thursday voiced disappointment at the collapse in the Senate. He said no decisions have been made, but stressed, "we will evaluate our options in light of the breakdown in Congress."

GM has already hired some of the U.S.'s biggest names in restructuring to consider whether to file for bankruptcy protection, said several people familiar with the matter, in what would be one of the largest and most controversial filings in U.S. history. GM Chief Executive Rick Wagoner has been reluctant to embrace the concept, fearing it would scare off potential buyers, and he "still believes the company can't and shouldn't file," but decided in the last few weeks to hire the outside advisers, said a person familiar with the matter.

After a marathon day of negotiations, top Democrats appeared close to a deal that would toughen the bailout package in a bid to raise Republican support, which had proved an insurmountable stumbling block. The focus of talks was on seeking commitments to restructure the industry's debt load and bring labor costs in line with wages paid by Toyota Motor Corp. and Nissan Motor Co. in the U.S., among other things.

But those talks fell apart after Republicans insisted that wages reach parity in 2009. Sen. Bob Corker (R., Tenn.), who emerged as a pivotal player this week in negotiations over the industry's future, said negotiators were close to striking a bipartisan compromise.

Democrats were willing to reach parity, but not on such a swift timetable. Mr. Reid declared talks at an impasse. "We have not been able to get this over the finish line," he said. "We have worked and worked...that's just the way it is."

With the talks in shambles, Mr. Reid moved late Thursday to bring up the White House-backed compromise, which would have expedited billions of dollars to the industry and created a strong government role in its restructuring. That effort failed on a 52-35 vote, as allies of the industry failed to win the 60 votes needed to end a Republican filibuster on the measure.

Sen. Christopher Dodd, a Connecticut Democrat, complained that Republicans had attempted to turn the wage issue into a political matter about organized labor, instead of making it an "an economic issue." With the economy in recession, he suggested it wouldn't be fair to force auto workers to accept wage cuts in 2009. "I'm deeply saddened. But more than saddened, I'm worried," he said. "This will fail, we will go home, and I'm afraid our country will be in deeper and deeper trouble."

The collapse of the talks represents a major defeat for three companies and an auto union that once wielded immense political clout. Even after two appearances in Washington by the GM, Ford and Chrysler CEOs, and a show of solidarity with the UAW, the auto makers were unable to convince many skeptical lawmakers to change their minds and support a bailout.

Only a handful of Republicans in the Senate had been willing to support the rescue package. Some raised concerns about government intervention in the marketplace. Others demanded the bill be strengthened to exact concessions from the industry.

Congress also remains bitter over the handling of the $700 billion financial rescue, which lawmakers on both sides feel they were pushed into approving and are displeased with the results.

"There is a lot of resistance," said Mr. Thune earlier in the day. "It's going to be really hard for anything to get to 60."

Both President Bush and President-elect Barack Obama had urged senators of their respective parties to pass a bill.

On Wednesday, the House approved the White House-backed package, kicking the issue into the narrowly divided Senate, where balky Republicans have the power to block action. The bill's limping progress was dealt a big blow Thursday by the Senate's top Republican, Mitch McConnell of Kentucky. He came out against the initial White House-backed package saying it doesn't require auto makers and their unions, suppliers, creditors and dealers to make changes needed to return to a sound financial footing.

"We simply cannot ask the American taxpayer to subsidize failure," said Sen. McConnell, suggesting the Big Three would have to find a way to survive without congressional help.

GM has already been preparing for the worst. Its management recently tapped bankruptcy veteran Harvey Miller of the New York law firm, Weil Gotshal & Manges LP. Mr. Miller worked on the bankruptcies of Lehman Brothers, Bethlehem Steel Corp. and Marvel Entertainment Group.

Others involved in the matter include restructuring veterans Jay Alix, Evercore Partners' William Repko, Blackstone Group's Arthur Newman and Martin Bienenstock at the law firm of Dewey & LeBoeuf LLP who worked on the Enron bankruptcy.

Mr. Alix, who has been in semi-retirement for several years, founded the Detroit-based turnaround and advisory firm AlixPartners and worked with GM on a number of high-profile cases in the 1990s, such as National Car Rental.

Evercore has been advising GM for many months, including on the failed merger with Chrysler LLC. Blackstone is focusing on GM's multibillion-dollar voluntary employee beneficiary association plan.

GM and its dealers are meeting late this week to discuss launching a new advertising campaign to spark sales. GM will also discuss plans for its Saturn division. One option includes putting the division into bankruptcy protection, as it is technically a separate entity.

GM executives are worrying that suppliers could tighten credit terms, and the government could swiftly recall its loans.

The company's 13-member board is subjecting Mr. Wagoner to deepening scrutiny. The board is now meeting three times per week and receiving constant updates on the financial situation.

"This is an urgent situation and we need to deal with it," Kent Kresa, a GM director since 2003, said Thursday before the Senate deal failed.

Mr. Kresa said GM management was constantly caught off-guard by declines in the U.S. auto market. While executives were continuously revising sales projections, the managers never fully understood how bad the situation could get, he added.

As GM operates near its minimum-required funding options, Mr. Kresa said the board continues to "keep all options open."

At a recent meeting, members decided to dismiss the idea of filing for Chapter 11 protection, at least for now, reasoning that if the company were in bankruptcy court, people wouldn't by its cars.

The collapse of the deal raises the stakes for Chrysler and its majority owner, Cerberus Capital Management LP. Lawmakers had called for Cerberus to put more money into the company, but Cerberus maintains it can't because the bylaw of its investment funds prevents it from putting more than a small percentage of its investors' funds into any single investment.

Chrysler Chief Executive Robert Nardelli told Congress the company would be unable to pay suppliers and employees if it doesn't get loans by the end of the month. Chrysler has acknowledged it has engaged bankruptcy experts in case it is forced to file for Chapter 11 protection.

Suppliers to the company are already nervous, and several have asked Chrysler to start paying cash for parts when they are delivered, Chrysler officials told the Associated Press. So far, Chrysler has declined the requests, they said.

(This item appeared Dec. 12, 2008, in the Wall Street Journal.)