Wall Street has braced itself for the likelihood that Washington will not approve an emergency $25 billion (£16.7 billion) bridging loan to bail out America’s car industry in time to avert the bankruptcy of at least one big manufacturer.

Barack Obama, the President-elect, said at the weekend that if the existing Bush Administration failed to agree an emergency rescue loan, it would be the first task of his administration once he took office on January 20. However, that could be too late for General Motors and Chrysler, which argue that they need immediate help.

Wall Street was dismayed after some Republicans on Capitol Hill remained adamant that the American taxpayer should not bail out General Motors, Ford and Chrysler. Spencer Bachus, a congressman from Alabama, argued that any bailout would “push the problem further down the path”. Christopher Dodd, chairman of the Senate Banking Committee, said that the industry was “seeking treatment for largely self-inflicted wounds”.

In the second day of testimonies on Capitol Hill, car executives begged for federal assistance. Robert Nardelli, chief executive of Chrysler, said that without immediate state aid his company may well run out of money. He said that in the three months to September 30, Chrysler had spent $3 billion, almost half of its reserves. “We are in a very fragile position.”

Rick Wagoner, GM chairman, has also given warning that his company might run out of cash by Christmas without a rescue loan from Washington. He later signalled that he would go should he be asked to resign as a condition of GM receiving federal aid.

While Mr Obama has said that he is in favour of helping the motor industry, there appear to be too few votes in the Senate to get such a Bill passed. Any measures by Mr Obama would have to wait until he takes office in January, by which time General Motors and Chrysler may have had to seek bankruptcy protection. The United Auto Workers Union has said that should one of the Detroit Three enter the bankruptcy process, it would pull the other two with it and none would survive long term.

Some Democrats in Washington sought yesterday to temper Wall Street’s expectations of an immediate bailout. Harry Reid, the leading Senate Democrat, pleaded with Henry Paulson, the Treasury Secretary, to reconsider his decision to deny motor companies access to the US Government’s $700 billion bailout scheme.

Shares in General Motors ended the day down 31 cents, 10 per cent, at $2.78, while Ford stock dropped almost 25 per cent to close at $1.27. The two are now valued at $1.7 billion and $3 billion, much less than the cash they hold in reserve, indicating that Wall Street expects both to fail.

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