America’s biggest car companies admitted yesterday to an astonishing slump in sales last month as the credit crisis froze auto loans across the United States.

The loss of financing and persistently high petrol prices hit General Motors, whose sales of new cars dropped almost 10 per cent over September to 118,440 vehicles. Ford suffered a 35 per cent slide in total car sales. Toyota declined by 32 per cent. General Motors admitted that it had cut down its stock by 20 per cent compared with a year ago.

As the car companies were forced to reveal their problems, President Bush said that he had finally signed off legislation to help carmakers to borrow $25 billion (£14.1 billion) for funding the cost of making more fuel-efficient vehicles.

The money had been earmarked last year but has only just been passed by Congress. The loan is understood to charge a low interest rate but the carmakers still do not know exactly when they will be able to tap the funds.

The loan is to help car companies to meet new fuel-efficiency standards that require cars to be able to reach 35 miles to the gallon by 2020. The loan is unlikely to meet the entire cost of the vehicle changes. Some have estimated the final bill will be around $100 billion.

Mr Bush’s handout may not be the last to America’s car companies. Henry Paulson, the US Treasury Secretary, has already expressed concern about the state of Wall Street’s frozen credit markets, which have ceased offering car loans.

Earlier estimates suggest that six million fewer new cars will have been sold in the US because of the banking crisis.

However, a warning over government intervention came from Kenneth Rogoff, former chief economist at the International Monetary Fund and now professor of economics at Harvard University. He told The Times that any Washington bailout would open “a can of worms”. He forecast that once the banks and financial institutions have been rescued with taxpayer money, other distressed industries such as car manufacturing will seek federal help.

So severe is the crisis among Detroit’s big three car manufacturers – Ford, General Motors and Chrysler – that they have reversed their previous optimistic outlook for 2009. They now believe next year could be just as bad as 2008.

Uncertainty over the timing of the loans comes after an appalling year for America’s car companies.

The big three have spent much of the year embroiled in talks with Detroit unions over cutting costly benefits to workers, redundancies and new terms under which they can hire employees more cheaply.

The lack of an agreement led to an all-out strike. As part of a massive overhaul of the way the car companies operate, the three groups have sought to slash costs and break themselves up as a means of raising capital and reducing their debt.

In the slow lane

— Ford’s US sales fell 35 per cent in September to 116,734 vehicles, down from 176,204 in the same month a year ago. Sales for the year to date are down by 17.3 per cent to 1.5 million vehicles

— Toyota’s US sales fell by 29.5 per cent in September, to 144,260 vehicles, with car sales down 25 per cent

— GM reported a 16 per cent fall to 282,806 vehicles in September sales in the US

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts