General Motors and Chrysler are to get a $17.4bn loan from the US state that will keep them afloat until March.

President George Bush announced this afternoon that the money would come from the Troubled Asset Relief Fund.

He argued that if the carmakers were allowed to collapse, the US economy would be pushed deeper and further into recession.

Under the terms of the plan, if the companies fail to demonstrate financial viability by the end of March 31 the loans will be called and the money must be returned.

The government’s debt would have priority over any other debts the companies have.

GM and Chrysler must also accept limits on executive compensation and management and labour must negotiate new wage and benefit agreements by the deadline.

Government officials will examine all financial statements and records of the car companies.

The government has the authority to block any transaction over $100m.

The package is intended for GM and Chrysler initially; Ford Motor Co. has said it can continue operations under current circumstances.