US Government bails out General Motors and Chrysler with $17bn loan

The US government has saved General Motors and Chrysler from imminent bankruptcy with a $17.4bn (£11.6bn) lifeline loan package in an unprecedented move that will pile pressure on the British government to follow suit.

President George W. Bush agreed to hand over the funds to the two companies after months of fraught negotiations over the future of the two companies and a week after politicians in the US Congress rejected a $14bn bail-out package.

The news will safeguard an estimated 3m jobs reliant on the car industry in the US, as well as 5,500 staff at General Motors' Vauxhall factories in Ellesmere Port and Luton.

GM and Chrysler, both based in the once-booming city of Detroit, Michiagn, had warned they would have run out of cash by the end of the year without assistance, putting hundreds of thousands of jobs directly at risk, and risking 3m job losses in the wider economy.

"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," said the US President, who is tapping the $700bn bank bail-out pot for the necessary funds.

He had been considering a form of bankruptcy for the pair, but decided against it as it was thought customers would be unwilling to buy cars from a bankrupt manufacturer.

President-elect Barack Obama said the funding should be used to reshape the American car industry, which has been in terminal decline for decades due to rising labour costs, uncompetitive product offerings and falling sales.

"The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it," he said.

Although the American deal helps to the future of Vauxhall, GM Europe said it was still seeking assistance from the UK Treasury "within days", with a spokesmen saying it continued "aggressive work" to "align the business with the significant downturn in the market".

The European arm of the company would likely have remained outside the collapse of GM in if it had gone into bankruptcy, but the European arm is still seeking a range of new measures, along with the rest of the British car industry, including tax deferrals and investment in new, more fuel-efficient technologies.

Unite joint general secretary Derek Simpson said that intervention must come within the next week. "What is being asked for from the Government is not a handout, not a gift, it is access to strategic funding for a sector that is key to our economy's global stature and one that will play a lead role in its emergence from this recession."