UPDATE 3-Bush says US will help automakers avoid collapse

(Adds congressional comments, further details)

WASHINGTON, Dec 19 (Reuters) - President George W. Bush on Friday offered a $17.4 billion government lifeline to ailing automakers General Motors GM.N and Chrysler LLC CBS.UL to prevent a deeper economic recession but he demanded they prove by March 31 that they can survive.

With only a month before leaving office, Bush emphasized that he normally opposed intervening in the free market but that the U.S. economy was too fragile now to allow the two big automakers to go bankrupt and throw thousands out of work.

“The automakers and unions must understand what is at stake and make hard decisions necessary to reform,” Bush said. “By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time.”

The administration agreed to intervene after Republicans last week scuttled a proposal by the White House and Democrats to redirect $14 billion in energy loans to automakers.

Administration officials kept Democratic President-elect Barack Obama informed about the deal because he will assume responsibility for the loans when he takes office on Jan. 20.

Chrysler, which is the weakest of the automakers, will get $4 billion in initial funding. The company said concessions would happen quickly and it would continue to undertake “significant cost reductions.”

GM, due for $13.4 billion, said the bailout will lead to a leaner and stronger company. Ford, which says its liquidity is adequate for now, said it hoped to continue restructuring without need for a government line of credit.

Conditions imposed by the White House include requiring the automakers to reach agreements for restructuring by March 31, with an interim report in mid-February. There would also be limits on executive compensation and other perks and the government would receive warrants for non-voting stock.


“These conditions send a clear message to everyone involved in the future of American automakers: the time to make hard decisions to become viable is now or the only option will be bankruptcy,” Bush said.

GM and Chrysler would also have to meet targets such as cutting wages and benefits by the end of 2009 to be more in line with non-union automakers. But the two could deviate from those targets if they can prove viability without them, the White House said.

On Capitol Hill, Democrats voiced support for Bush’s action, while many of the president’s fellow Republicans, who had blocked a legislative bailout, denounced his decision.

“I find it unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars while failing to receive any serious concessions from the industry,” said Sen. John McCain, an Arizona Republican who lost to Obama in the 2008 presidential contest.

Treasury Secretary Henry Paulson will serve as Bush’s designee to oversee the loans until he leaves office and Obama will be able to select his own designee when he takes office, White House Deputy Chief of Staff Joel Kaplan said. (Additional reporting by John Crawley, David Alexander and Thomas Ferraro; Editing by Doina Chiacu)