The U.S. government will offer a US$17.4 billion rescue package for Detroit auto makers that avoids bankruptcy.

In a statement issued Friday, U.S. President George W. Bush said the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse, deepening the current economic downturn.

“In the midst of a financial crisis…allowing the U.S. auto industry to collapse is not a responsible course of action,” Bush said.

The deal would extend US$13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another US$4 billion likely available in February. It also would provide the U.S. government with non-voting warrants, although the exact amount was unclear immediately.

The deal is contingent on the companies’ showing that they’re financially viable by March 31. If they’re not financially viable, the loans will be called and all funds must be returned, officials said.