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US government has said it will provide £11.6bn in loans to help troubled carmakers General Motors and Chrysler to survive.

President Bush announced $13.4 billion in emergency loans on Friday to prevent the collapse of General Motors and Chrysler, and another $4 billion available for the hobbled automakers in February with the entire bailout conditioned on the companies undertaking sweeping reorganizations to show that they can return to profitability.

The loans, as G.M. and Chrysler teeter on the brink of insolvency, essentially throw the companies a lifeline from the taxpayers that will keep them afloat until March 31. At that point, the Obama administration will determine if the automakers are meeting the conditions of the loans and will continue to receive government aid or must repay the loans and face bankruptcy.

President George W Bush said allowing the US car industry to fail would not be "a responsible course of action".

The money to aid the automakers will come from the Treasury’s $700 billion financial stabilization fund and shortly after Mr. Bush’s announcement, the Treasury secretary, Henry M. Paulson Jr., who will oversee the aid to the auto industry, said Congress would need to release the second $350 billion for that program in short order.

By law, once Mr. Paulson makes a formal request, Congress has 15 days to reject it and deny the additional money. It was unclear when that request would be sent or if lawmakers who have left Washington for the holidays, would return to debate it. The administration’s handling of the program has come under sharp criticism and several lawmakers in both parties have suggested they would oppose the release of more money.

Mr. Bush made his announcement a week after Senate Republicans blocked legislation to aid the automakers that had been negotiated by the White House and Congressional Democrats, and the loan package announced by the president includes roughly identical requirements in that bill, which had been approved by the House.

Mr. Bush, in a televised speech before the opening of the markets, said that under other circumstances he would have let the companies fail, a consequence of their bad business decisions. But given the recession, he said the government had no choice but to step in.

“These are not ordinary circumstances,” Mr. Bush said. “In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.”

He said that bankruptcy was not a workable alternative. “Chapter 11 is unlikely to work for the American automakers at this time,” Mr. Bush said.

The government will use part of the $700bn originally pledged to rescue US banks. It has set a deadline of 31 March for the firms to become viable.

The loan deal requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers in the United States.

US President-elect Barack Obama urged the carmakers not to "squander this chance to reform bad management practices" in the industry.

"The auto companies must bring all their stakeholders together, including labour, dealers, creditors and suppliers, to make the hard choices necessary to achieve long-term viability."

The debt reduction and the cuts in wages were central components of proposal by Senator Bob Corker, Republican of Tennessee, who tried to broker a last-minute deal. Those talks had deadlocked on a demand by Republicans that the wage cuts take effect by a set date in 2009, while the union had pressed for a deadline in 2011.

Meanwhile, US Treasury Secretary Henry Paulson urged Congress to authorise the use of the second half of the $700bn Wall Street bail-out, as the first $350bn had already been committed.

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