President Bush threw an eleventh-hour lifeline to America's stricken car industry yesterday after being faced with - and potentially blamed for - the collapse of the country's once-mighty car manufacturers.

Abandoning his longstanding objection to using part of the $700 billion (£470 billion) Wall Street rescue fund to help to save Ford, General Motors and Chrysler, Mr Bush appeared ready to reverse course after Republicans killed off an emergency car industry rescue package on Thursday night.

Senate Republicans, in open revolt against their own President, who had sided with Democrats to back the emergency $14 billion bailout, blocked the scheme after Detroit's car unions refused to accept wage cuts that would have seen them paid the same as employees of Japanese carmakers elsewhere in the United States.

The embattled chief executives of Chrysler and General Motors had pleaded with Congress for the emergency funds, insisting that without them they could be bankrupt by Christmas. Ford executives said they could scrape by, but that the collapse of the other two would doom the company.

Ten hours after Senate Republicans killed off the bailout Bill - and 20 minutes before the opening bell on Wall Street - Dana Perino, Mr Bush's Press Secretary, said in a statement that it would be “irresponsible” to let the car companies fail.

She said that Mr Bush would consider other options, including Wall Street's $700 billion Troubled Assets Relief Programme, “to prevent a collapse of troubled automakers”.

A Treasury spokeswoman added: “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.”

Until yesterday, Mr Bush had stubbornly insisted that the $700 billion Wall Street package was limited solely to stabilising the stricken financial sector and unclogging the credit markets.

Yet the collapse of the emergency car bailout, with no chance of it being revived before Barack Obama takes office in January, left the future of America's car industry - and with it the fate of up to three million jobs - squarely on Mr Bush's shoulders.

He was facing intense pressure to act. Last night, General Motors announced the temporary closure of 21 factories in the United States, Canada and Mexico to reduce first-quarter production by about 30 per cent, or 250,000 vehicles. Most of the factories will be closed for the whole of January. Normal output for the quarter would be about 750,000 vehicles.

GM said: “The speed and severity of the auto market's decline has been unprecedented in recent weeks as consumers reel from the collapse of the financial markets and the resulting lack of credit for vehicle financing.”

In the waning days of his presidency, Mr Bush had a choice: do nothing, and risk seeing the manufacturers go bankrupt, or act unilaterally by allowing an injection of funds that would not need Congress's approval.

Just how unpalatable Mr Bush found the idea of doing nothing, amid fears of how the collapse of the car industry would impact an already reeling US economy, was summed up by Dick Cheney when he met Senate Republicans on Wednesday. If aid to the manufacturers was rejected, the Vice-President said, it will be “Herbert Hoover time” — a reference to the Great Depression.

Ms Perino added: “Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the weakened state of the US economy ... a precipitous collapse of this industry would have a severe impact on our economy.”

The $14 billion bailout appeared close to passage after lengthy negotiations on Thursday, but finally collapsed because of the car unions' refusal to impose wage cuts next year.

The fight revealed a fascinating geographical split inside the Republican party, between Rustbelt senators representing the stricken Midwestern American car industry, and Southern senators, where foreign-owned car makers have built far more successful factories.

Mr Obama has made it clear that he views the collapse of the car industry as “unacceptable”. If further funds are needed, he he is likely to push through rescue legislation next year because he will inherit a new Congress with a 58-seat Democratic majority in the Senate. Together with some Republicans, that should give him enough votes to override Republican objections.

Mr Obama has nevertheless been highly critical of the mismanagement of the car industry. He has said that any emergency funds will be provided only with strict conditions, based on a restructuring of the companies and a promise to make smaller, more fuelefficient cars.

In a statement last night, he again condemned the car industry's “bad practices”, but added: “I also know that millions of American jobs rely directly or indirectly on a viable auto industry, and that the beginnings of reform are at hand.”

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