On the edge of bankruptcy and warning that if they went under that  millions of jobs would be lost, including from suppliers and a ripple effect across the country, General Motors and Chrysler, two of the United States’ Big Three auto manufacturers, will get an emergency USD 13.4 billion emergency loan, US President George Bush said. That came as the US Congress had denied help for the country’s iconic car industry despite the dire predictions that if they failed the country’s recession could turn into a brutal Depression and even sink the economy. The third automaker, Ford, said it had enough cash and didn’t need any for now.

The federal funds come with tough conditions. General Motors Corp and Chrysler will have to prove they can return to viability or the money could be withdrawn again by March 31, likely leaving no option other than bankruptcy. The loan provides GM with USD 9.4 billion and Chrysler with four billion dollars through December and January. GM could get another four billion February.

“In the midst of a financial crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action,” Bush said in a statement at the White House. GM and Chrysler, who had warned they faced collapse without access to federal aid, welcomed the government’s decision and promised to use the funds to enact the painful restructuring moves demanded as a condition for the loan. “Today’s actions are a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers,” US president-elect Barack Obama said. He had said it was critical to save the car industry, but said America’s car makers had to learn to make smaller and more fuel-efficient cars, as European companies have for many years, instead of the tank-like big cars and Sports Utility Vehicles (SUVs) that Americans loved before this past summer’s oil price spike and a painful economic recession that has them keeping their money in their pockets.

In a statement, Obama said that the carmakers “must not squander this chance to reform bad management practices and begin the long- term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it.”

US stocks climbed more than two percent on the long-awaited announcement, led by carmakers and their parts suppliers. Car sales have plunged 40 percent in the past few months as consumers struggled to get loans in the current financial crisis, adding to the woes of an industry that has already been struggling to keep up with more fuel-efficient and cheaper foreign competitors.

“Our focus now turns to fully and rapidly implementing” the company’s restructuring plan, GM Chief Executive Rick Wagoner said. “We know we have a lot of work in front of us to accomplish this plan.” Ford was the only one of the so-called Big Three that said it could survive without the federal funds. Both GM and Chrysler had planned to shutter manufacturing plants in the coming months to conserve cash. Bush said the failure of one of the US carmakers would deal an “unacceptably painful blow” to the world’s largest economy and leave Obama with a massive crisis on his hands just days into the new administration.

The tough restructuring moves at GM and Chrysler will include slashing labour costs to the levels of foreign competitors and other concessions if they hope to avoid bankruptcy in early 2009. Both are expected to present a new business plan by February 17 and have it in place by the end of March to keep the bail-out alive, the White House said. “I’m highly confident we’ll be able to meet that test,” Wagoner said.
The funds will come from the USD 700 billion financial rescue package approved by Congress in October, after attempts to provide the car industry with a separate aid package were blocked by Republican legislators. Bush had previously refused to use funds from the financial rescue package, but said Congress’ failure to act had left him with no other choice. “The American people want the auto companies to succeed, and so do I,” Bush said. Treasury Secretary Henry Paulson will manage the bail-out until Obama’s administration takes office January 20.