UPDATE 2-US automakers clear big hurdle for $25 bln in loans

(Recasts, adds House passage, industry comment)

WASHINGTON, Sept 24 (Reuters) - The U.S. auto industry is on the verge of securing up to $25 billion in government loans to help ease financial distress and produce more cars and trucks that consumers want to buy.

The House of Representatives approved a measure -- included in a larger, must-pass spending bill -- on Wednesday that would fund the low interest financing. The Senate plans to follow through swiftly on the legislative package and President George W. Bush is expected to sign off before Oct. 1.

Enactment would represent the first government intervention in the auto industry since the 1980 bailout of Chrysler with $1.2 billion in loan guarantees.

"Congress clearly recognizes the need to move forward at this critical time to make available this source of capital," Greg Martin, a spokesman for General Motors Corp GM.N said.

GM shares were lower on Wednesday, while Ford stock rose more than 3 percent on the New York Stock Exchange.

While automakers pressed for financing, they and their backers in Congress continued to insist the package did not represent a bailout, even though the Detroit companies are reeling from depressed sales and a rock bottom credit outlook.

“There are those who will lump it in with the bailouts. That’s garbage,” said Rep. Joe Knollenberg, a Michigan Republican who played a crucial role in securing the help.

The financial crisis hammering Wall Street has further clouded Detroit’s prospects for credit and injected new urgency in the drive this month by the most senior industry executives and their allies in Congress to quickly obtain the financing.

GM, Ford Motor Co F.N and Chrysler LLC told lawmakers they would manage without the loans, but suggested that, absent help, tens of thousands of jobs would be at risk.

Others have painted a darker portrait. For instance, David Cole, director of the Center for Automotive Research, has said Congress faced the severe choice of lending Detroit money now or dealing with the aftermath of a potential bankruptcy.

The loans were authorized -- but not funded -- in last year’s energy law that requires industry to improve fuel efficiency of their vehicles by 40 percent by 2020.

Industry and supporters say the federal efficiency mandate imposes cost of between $80 billion and $100 billion that U.S. manufacturers and suppliers just cannot afford.

House lawmakers approved $7.5 billion in taxpayer funds necessary to issue the loans, which could become available late this year or early next.

The provision also includes money for the Energy Department to administer the loan program. Energy planners have 60 days after enactment to complete rules governing the kinds of projects that will be eligible.

The $25 billion will be drawn from a Treasury Department financing program.

While loans are open to all automakers, leading foreign manufactures are unlikely to apply. One reason is Japanese carmakers are already ahead of their U.S. rivals in producing the fuel efficient vehicles consumers are clamoring to buy. These include gasoline-electric hybrids.

Detroit had for years thrived on producing gas-guzzling sport utilities and pickups, sales of which have plummeted because of record high gas prices. They now find themselves with outdated factories and insufficient funds to retool them or develop future technologies in the time frame consumers and the government now demand.

Automakers failed to get language in the final House bill to qualify a broader set of projects for financing, but backers in Congress promised to ensure the loan program worked as intended.

“I think we got that which they need to go forward,” said Rep. John Dingell, a Michigan Democrat and chairman of the Energy and Commerce Committee.

Automakers initially wanted Congress to include another $25 billion in loans for the coming years, but backed off after sensing uneven support on Capitol Hill. Nevertheless, Dingell said on Wednesday that work would begin on a second package because the costs of the efficiency mandate will increase.

Automakers were also aided by presidential politics. Both candidate supported help for the struggling Midwest, where the U.S. auto industry is centered.

In addition to loans, the Senate approved on Tuesday a measure in a renewable energy bill that would give consumers a tax break of up to $7,500 for buying a plug-in electric car.

This is welcome at GM, which plans to roll out the Volt plug-in in 2010. GM argues tax breaks are among options needed to reduce Volt costs. Pricing is not final, but GM’s chief executive has said the Volt could cost more than $35,000.

The House approved a plug-in tax break of up to $5,000, but it is unclear if congressional negotiators can resolve this and other differences in the larger renewable energy package.

Toyota Motor Corp 7203.T is developing a plug-in version of its Prius. (Reporting by John Crawley; Editing by Lisa Von Ahn and Andre Grenon)