Bottom Drops Out; Dow Plummets 5.6%

"Flying an airline that is bankrupt, you can hold your nose and do it, but buying a car from a company that's bankrupt, that's a risk I'm not sure a consumer wants to take," said Ablin.

Ablin said that Thursday's volatility was analogous to the market mood when Congress was working on the TARP plan. "I generally don't watch C-SPAN, but these days any equity investor has to be tuned into Capitol Hill," a development that he said doesn't inspire confidence.

Robert Pavlik, chief investment officer for Oaktree Asset Management, said that a bankruptcy by the automakers would reverberate throughout the markets. Companies such as Johnson Controls (JCI Quote), which makes auto interiors, Goodyear Tire (GT Quote) and the technology companies that make cars' computer chips are dependent on the manufacturers. "It's more of an octopus than you can imagine," he said.

Pavlik also said automakers' employees would also suffer if Congress did not intervene. Even so, "You have plenty of other negatives out there for this economy and [an automaker bailout] is not going to solve it," he said.

Shares of GM (GM Quote) and Ford (F Quote) were each up more than 40% at their intraday highs, but pared their gains. GM added 3.2% to $2.88, and Ford jumped 10% to $1.39.

While the Senate pact trumped other headlines from the auto sector, that didn't stop the group from making news in other regards. The Financial Times, citing a person familiar with recent discussions, reported that Chrysler is looking to reinvigorate merger talks with GM as the companies face increasing cash-flow troubles.