Bush pledges $13bn to prevent collapse of US car industry

The White House today stepped forward to prop up America's ailing motor industry by providing emergency loans of $13.4bn to stave off a potentially disastrous collapse of Detroit's leading car manufacturers.

A week after political wrangling in Congress scotched a legislative rescue package, President Bush used his executive power to deliver a three-month reprieve for General Motors and Chrysler.

"Allowing the US auto industry to collapse would not be a responsible course of action," said Bush. "It would be an unacceptably painful blow to Americans far beyond the auto industry."

The money will come from the US government's $700bn economic bail-out fund originally intended to support struggling banks. GM will get $9.4bn and privately owned Chrysler will receive $4bn. Ford, which is in better shape, told the White House it did not need an immediate handout.

The money has strings attached. Carmakers must prove by the end of March that they have long-term viability. By the end of next year, they will be obliged to cut workers' pay and benefits to make them "competitive" with their counterparts at Japanese firms such as Toyota and Nissan, a timetable which unions have branded unworkable.

Outside the Oval Office, the president said he faced a tough decision. While he believed the government had a responsibility not to undermine private enterprise, he also believed it had a duty to safeguard the broader health of the economy.

"If we were to allow the market to take its course now, it would almost certainly lead to a disorderly bankruptcy and liquidation for the auto makers," said Bush.

He said such a scenario would push the US economy into a longer and deeper recession. "It would leave the next president to confront the demise of a major industry within his first days of office," he said.

Economists believe the damage caused by the failure of one of Detroit's "big three" manufacturers would be economically spectacular. The Michigan-based Centre For Automotive Research has suggested that more than a million jobs could be lost among suppliers and contractors dependant on the motor industry.

General Motors is in particular difficulty and had indicated it may not have enough cash to see it through the new year. It was quick to welcome the White House's intervention, issuing a statement saying: "This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us."

The case of Chrysler has attracted greater controversy because the company is owned by a wealthy private equity firm, Cerberus, which has refused to commit more of its own money to support the business. In a sign of its financial predicament, Chrysler will today shut its manufacturing operation for an extended Christmas break of a month to save money, temporarily laying off 46,000 staff.