Calling it the "more responsible option," U.S. President George W. Bush on Friday dipped into the massive financial bailout package to offer $17.4 billion US in short-term loans to automakers.
"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," he said during a news conference at the White House.
"Under ordinary circumstances, I would say this is the price that failed companies must pay. These are not ordinary circumstances."
Shares of General Motors rose 83 cents, or more than 22 per cent, to $4.49 US on the New York Stock Exchange, while Ford was up 11 cents at $2.95 US.
U.S. president-elect Barack Obama praised the announcement.
"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 workers," he said.
"With the short-term assistance provided by this package, the auto companies must bring all their stakeholders together — including labour, dealers, creditors and suppliers — to make the hard choices necessary to achieve long-term viability."
The loans will come from the $700-billion financial market rescue package approved by Congress in October, the Troubled Asset Relief Program (TARP).
The loans will be handed out in December and January, but will be recalled if the companies are not viable by March 31, 2009.
GM CEO Rick Wagoner told reporters in Detroit that he doesn't think the March deadline is impossible.
"What we need to do is show we can get that stuff done on the required timeframe, and then on the basis of that we will develop future projections for the company, and I'm highly confident we'll be able to meet that test," he said.
The plan requires firms to accept limits on executive compensation and eliminate certain corporate perks, such as company jets.
"The automakers and its unions must understand what is at stake and make hard decisions necessary to reform," Bush said.
White House officials said Ford has told them it doesn't need the loan, so the money will likely go to General Motors and Chrysler.
Chrysler CEO Bob Nardelli thanked the Bush administration for the help, saying it would get the companies through their immediate needs and on the path back to profitability.
Ford CEO Alan Mulally said the bailout will help stabilize the industry, even though his company doesn't immediately need cash.
"The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy," Mulally said.
Treasury Secretary Henry Paulson said Congress should authorize the use of the second $350 billion from TARP. Tapping the fund for the auto industry basically exhausts the first half of the $700-billion total, he said.
Collapse would be 'painful blow'
Bankruptcy was unlikely to work for the auto industry at this time because the global financial crisis pushed the automakers to the brink of bankruptcy faster than they could have anticipated, Bush said.
"They have not made the legal and financial preparations necessary to carry out an orderly bankruptcy proceeding that could lead to a successful restructuring," he said.
Consumers, already wary of additional spending, will be more hesitant to buy a Big Three auto if they think their warranties will become worthless, said the president.
"Such a collapse would deal a painful blow to hardworking Americans far beyond the auto industry."
Bush said the "more responsible option" is to provide short-term loans to give the companies time to either restructure, or set up the legal and financial frameworks necessary to declare bankruptcy.
The Senate failed to pass a $14-billion US bailout package to the automakers last week.
Earlier this month, Ottawa and the government of Ontario reached a deal to offer money to Canada's auto industry based on a proportion of any package agreed to by U.S. officials.
Auto sales have dropped drastically, with carmakers reporting their lowest sales in 26 years.