An emergency bridging loan to help out America’s ‘big three’ car makers – GM, Chrysler and Ford – has been rejected by the Senate.

We explain what this means and how it could affect YOU.

What happened?

The US Senate failed to pass a $14bn (£9.4bn) emergency bail-out loan for America’s leading three leading car manufacturers – Ford, Daimler Chrysler and General Motors (GM) last Friday.

The loan request came last month after car makers saw huge losses in sales, due in part to the global credit crisis.

The rescue package failed in the Senate after not getting enough votes, and there are fears GM and Chrysler could reach bankruptcy before the end of the year.

Plans collapsed after the United Auto Workers (UAW) union rejected a proposal from Republicans to cut wages.

Republican Senator Richard Shelby, said, “Bailouts generally don’t work and as this is a huge proposed bailout, I fear it’s just the down payment on more to come next year.”

Senate majority leader Harry Reid has advised President Bush to use money from the Troubled Asset Relief Programme (TARP) to help the car industry instead.

View our slide show of cars of "the big three"

What caused it?

The global credit crunch has left ‘the big three’ in a financial crisis – motorists aren’t buying many new cars as it’s harder for consumers to get loans, and more people are keeping their current car.

‘Legacy costs’ have also hit the car makers hard. All three are paying for hundreds of thousands of former workers’ healthcare and pension costs.

These costs are not felt by their rivals such as Toyota, whose Prius hybrid is seen as a success in the US.

Some say it’s down to the type of new cars the big three are producing. While other manufacturers began designed greener cars, the big three continued manufacturing big SUVs and trucks, which are now seeing a slump in sales.

How will it affect me?

If GM, Ford and Chrysler go bankrupt it could have a knock-on effect throughout the US car industry.

Up to 2.5 million jobs could be lost, which will have an impact on the world’s economy. It could also cause the interest of used cars to decrease, as manufacturers will have to think of more ways to produce new cars for less – such as the Tata Nano.

The worst possible outcome if all three go bankrupt is for Ford Europe and Vauxhall to go under, which is part of the GM group. This could affect hundreds of thousands of employees, including part suppliers and franchised dealers across the UK.

It’s likely there’ll be a new buyer if this is the case, and production could move abroad or stay in the UK, depending on the company’s new ownership.

The import market could also affect UK shores as there’ll be less cars coming in and out of the US, and motorists might turn to other manufacturers.

Competition between car makers will be fiercer than ever, and the motorist will have better access to bargains as new car prices drop.

What happens next?

The manufacturers won’t receive aid in the form of a bridge loan – but there are talks of the US using its Troubled Asset Relief Programme (TARP) to help the car industry instead.

The White House originally said this was off-limits unless the Senate failed to pass legislation for the $14bn (£9.4bn) bail-out, which happened last Friday.

If this doesn’t go to plan, the newly elected Congress may reconsider action when it goes into office in January 2009.

Alternatively the companies could file under Chapter 11 bankruptcy protection, which gives them more time to reorganise, but GM said it would be difficult for a company of its size to complete.

No other actions by the Congress are expected before the end of this year.

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View our "big three" cars slide show

Should the bail-out happen? Have your say on the Auto Trader Blog