US President Barack Obama speaks about the American automotive industry in the Grand Foyer at white house in Washinton, on March 30, 2009. [Xinhua]

"We cannot, we must not, and we will not let our auto industry simply vanish," the president said.

Obama said his administration will offer General Motors (GM) and Chrysler a limited period of time to work with creditors, unions, and other stakeholders "to fundamentally restructure in a way that would justify an investment of additional tax dollars."

During this period, the automakers "must produce plans that would give the American people confidence in their long-term prospects for success," he said.

GM will get adequate working capital over the next 60 days to produce a reorganization plan acceptable to the administration, while Chrysler is getting up to 6 billion dollars and 30 days to complete a merger deal with Italian automaker Fiat.

To support demand for auto sales during this period, the government will offer tax incentives for auto purchases, and to consumers trading in old cars for newer fuel-efficient models.

GM and Chrysler, two of the nation's Big Three automakers, have been hard hit by the economic downturn and the worst decline in auto sales in 27 years. They got 17.4 billion dollars in emergency loans from the Bush administration in December last year on the condition that they would develop plans to restructure.

Under the terms of the loan agreement reached during the Bush administration, GM and Chrysler are pushing the United Auto Workers (UAW) to accept shares of stock in exchange for half of the payments into a union-run trust fund for retiree health care.

They also want labor costs from the union to be competitive with Japanese automakers with US operations.