The White House said it was evaluating its options in light of the breakdown.
"It's disappointing that Congress failed to act tonight," a White House statement said. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable."
The Senate rejected the bailout 52-35 on a procedural vote - well short of the 60 required - after the talks fell apart.
The implosion followed an unprecedented marathon negotiations at the Capitol among labor, the auto industry and lawmakers who bargained into the night in efforts to salvage the auto bailout at a time of soaring job losses and widespread economic turmoil.
The group came close to agreement, but it stalled over the UAW's refusal to agree to wage cuts before their current contract expires in 2011. Republicans, in turn, balked at giving the automakers federal aid.
Reid called the bill's collapse "a loss for the country," adding: "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight."
"In the midst of already deep and troubling economic times, we are about to add to that by walking away," said Sen. Chris Dodd, D-Conn., the Banking Committee chairman who led negotiations on the package.
Alan Reuther, the UAW's legislative director, declined comment to reporters as he left a meeting room during the negotiations. Messages were left with Reuther and UAW spokesman Roger Kerson.
The stunning disintegration was eerily reminiscent of the defeat of the $700 billion Wall Street bailout in the House, which sent the Dow tumbling and lawmakers back to the drawing board to draft a new agreement to rescue financial institutions and halt a broader economic meltdown. That measure ultimately passed and was signed by Bush.
It wasn't immediately clear, however, how the auto aid measure might be resurrected in a bailout-fatigued postelection Congress, with Bush's influence at a low ebb.
Congressional Republicans were already in open revolt against Bush over an auto bailout deal the White House negotiated with congressional Democrats, passed by the House passed on Wednesday.
The momentum flagged even amid evidence of deepening economic meltdown. The government reported last week that the economy had lost more than a half-million jobs in November, the most in any month for more than 30 years.