Obama says proving naysayers wrong on auto bailout

* Seeks to boost confidence in handling of economy

* Speaks at General Motors and Chrysler plants

By Caren Bohan

DETROIT, July 30 (Reuters) - U.S. President Barack Obama on Friday defended his decision to bail out General Motors GM.UL and Chrysler, saying he had proven the naysayers wrong as he touted his economic policies ahead of the November congressional elections.

On a visit to automakers' plants in recession-battered Michigan, Obama sought to boost confidence in his handling of the auto industry's crisis as part of an economic agenda that has drawn Republican complaints of a government overreach.

"We've got a long way to go but we're beginning to see some of these tough decisions pay off," Obama said in a speech at a Chrysler plant where he invoked the manufacturing sector's mobilization during World War Two as proof of America's ability to rise to the toughest challenge.

With the U.S. unemployment rate at 9.5 percent, polls show Americans' faith in Obama's stewardship of the economy has eroded, a trend that is worrisome to his Democrat allies ahead of November's mid-term ballot.

Economic growth slowed to 2.4 percent in the second quarter, a government report showed on Friday.

As the election campaign moves into full swing, Democrats are at risk of steep losses that could cost them their control of one or both houses of Congress.

But in a sign of the auto industry's improving fortunes, Obama's trip coincided with an announcement by Chrysler that it was adding a second shift to the Sterling Heights Assembly Plant near Detroit in early 2011 and would keep it open beyond 2012 when it had been slated for shutdown. [ID:nN30161372]

Obama said his administration's 2009 bailout of GM and Chrysler, heavily criticized by opposition Republicans, had allowed the auto industry to "prove the naysayers wrong."

"They don't like admitting when I do the right thing, but they might have had to admit it and I want all of you to know now that I will bet on the American worker any day of the week," Obama told workers at Chrysler's Jefferson North plant, which makes the Jeep Grand Cherokee and has added a second shift.

He was also due to visit a GM plant in Hamtramck where the Chevy Volt electric car is assembled.

GM and Chrysler have received more than $62 billion in direct bailout and bankruptcy assistance since 2009 and are transforming their operations to make more fuel-efficient cars and trucks.

ADMINISTRATION UPBEAT ON AUTOS

A report released by the White House a day before Obama's trip touted added production shifts, a healthier supply base, stronger sales, increasing exports, and fresh investor optimism overall for the sector.

Administration officials were also upbeat about GM's plan to launch an Initial Public Offering of shares later this year and said they were hopeful Chrysler can do the same at some point down the road.

Such a step in late 2010 at GM would enable the Treasury to start divesting its 60 percent stake in the automaker, which is mostly held in common equity with a lesser amount in preferred shares. Much of the Chrysler stake is debt with a small percentage in common stock.

GM chief executive Ed Whitacre said earlier this year that the goal of his company was to repay taxpayers in full.

GM used unspent bailout funds earlier this year to retire a $7 billion loan. The Treasury has recouped about $2 billion so far from Chrysler.

The White House report on Thursday also said suppliers are ending their bailout program this month and fully repaying the $5 billion in aid that they received. (Writing by Caren Bohan and Matt Spetalnick; additional reporting by John Crawley and Patricia Zengerle; editing by Vicki Allen)