Bush throws lifeline to auto industry

By Jeremy Pelofsky and John Crawley

WASHINGTON (Reuters) - President George W. Bush announced $17.4 billion in emergency loans to faltering U.S. carmakers on Friday in a dramatic step to guard the industry from imminent collapse and save hundreds of thousands of jobs from falling victim to a deep recession.

Bush, seeking to bolster his legacy and bucking some fellow Republicans who would prefer the car industry work out its problems without government aid, said it would be irresponsible in a time of economic crisis to let carmakers die.

The government will offer up to $17.4 billion in loans to the ailing U.S. automakers and expects General Motors and Chrysler LLC to access the money immediately, a senior administration official said.

Ford Motor Co, the other firm in Detroit's storied Big Three, said its liquidity is adequate for now and it did not need a loan at this point.

"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," Bush said, warning that to do nothing would deepen and prolong the U.S. recession.

U.S. stocks rose on the news of the lifeline to the sector, with GM shares jumping 16 percent.

Some $13.4 billion of the total package will be made available in December and January from a $700 billion Wall Street bailout fund that was originally designed to rescue struggling financial institutions.

Democratic President-elect Barack Obama, who takes over from Bush on January 20, supported the move, calling it a "necessary step."

A transition official said Obama was not part of the administration's decision to grant the firms a lifeline. But Obama has been calling for short-term loans to the sector conditioned on steps toward long-term viability.

'BARREL OF A GUN'

"Thank God! From an economic perspective, we were looking down the barrel of a gun. So I am happy that someone has the good sense to duck," said Erich Merkle, an analyst with Crowe Horwath in Michigan, of the news.

"It's a lifeline, but it doesn't get them completely out of the woods. It takes them (GM and Chrysler) forward until March. Basically the next administration has to deal with it."

The White House moved on its own after Democrats and Republicans in the U.S. Congress were unable to reach agreement after weeks of negotiations that included desperate pleas on Capitol Hill from the auto chiefs.

Bush attached a string of conditions.

He set a deadline of March 31 for the companies to prove they can restructure sufficiently to ensure their survival or else the loans will be called back.