WASHINGTON (Reuters) - U.S. auto executives warned Congress on Tuesday that their industry was teetering on the brink of disaster as they pleaded for a $25 billion aid package despite political opposition to another multibillion-dollar government bailout.

The hearings come as government and business officials around the globe decide if, and how, they should commit billions of taxpayer dollars to bolster struggling automakers.

Rick Wagoner, the head of General Motors Corp, bluntly told the Senate Banking Committee why the executives were there.

“This is about much more than just Detroit,” Wagoner said in his testimony. “It’s about saving the U.S. economy from a catastrophic collapse.”

The hearings came a day after Senate Democrats proposed to bail out the ailing industry with $25 billion in government-backed loans.

The weakened economy and global credit crisis pushed the U.S. government into bailing out companies including insurer American International Group Inc; investment bank Bear Stearns; and mortgage companies Fannie Mae and Freddie Mac.

Wagoner; Robert Nardelli, head of Chrysler LLC; Alan Mulally, CEO of Ford Motor Co; and Ron Gettelfinger, head of the United Auto Workers union all testified on Tuesday.

“While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades,” Mulally said.

“We are hopeful that we have enough liquidity based on current economic planning assumptions and planned cash improvement actions, but we know that we live in tumultuous economic times.”

The reception from legislators was somewhat less cordial than the well-paid executives are used to.

Sen. Richard Shelby, an Alabama Republican and a member of the committee, has called the automakers “failed models” and said they should file for bankruptcy.

Criticizing the bailout, Kentucky Republican Sen. Jim Bunning said, “The proposal coming before the Senate tomorrow is not a serious one.”

PRESSURES AT HOME AND ABROAD

Both GM and Ford shares fell again on Tuesday. In the past 12 months, GM shares have lost more than 90 percent of their value and Ford is down more than 80 percent.

The auto industry in Europe is also under pressure.

The EU is studying support for its carmakers, and industry Commissioner Guenter Verheugen signaled support for a German offer to help the Opel unit of GM.

But others insisted there could be no special treatment for the industry, and the future of Opel is unclear.

“You cannot compare the car sector with the financial sector,” Competition Commissioner Neelie Kroes said, referring to the mass bailouts by EU governments last month of key banks because of the financial crisis.

While joining the chorus in support of a car industry bailout, Bank of America Corp’s top official said that not all of Detroit’s Big Three should survive.

“The first thing would be that (the U.S. automakers) acknowledge that there is one too many auto companies and that consolidation needs to take place,” Chief Executive Kenneth Lewis said at a Detroit Economic Club event.

The most likely victim could be Chrysler, owned by private equity firm Cerberus LLC.

“We are willing to provide full financial transparency, and welcome the government as a stakeholder -- including as an equity holder,” Robert Nardelli, the head of Chrysler, said in his testimony.

He said that without immediate financial help, the company may lack sufficient capital to continue operating. The company also announced a plan to restructure its Canadian operations this year and next in order to preserve cash.

THE U.S. PLAN

Legislation under consideration by U.S. lawmakers would provide funding on top of $25 billion of loans approved earlier this year for the companies to improve their technologies and create a line of more fuel-efficient vehicles.

(L-R) GM's Rick Wagoner, Chrysler's Robert Nardelli and Ford's Alan Mulally in a composite image. Auto executives were set to take their case for a $25 billion industry bailout to Congress on Tuesday as they hope to overcome political opposition from influential congressional Republicans and the White House. REUTERS/Composite/Files

The part of the plan that seems to have gained the least traction is the idea of using a portion of the $700 billion Troubled Asset Relief Program (TARP) for the automakers.

Treasury Secretary Henry Paulson said during a House Financial Services Committee hearing that while it would not be a good thing to let an automaker fail, the $700 billion fund should not be used to prevent such a failure.

A major question of the bailout is how the companies will deal with its union workforce.

Gettelfinger said at the hearing the situation facing GM, Ford and Chrysler is dire.

“If the government does not act to provide immediate assistance, GM, Ford and Chrysler could be forced to liquidate,” the union head said.

“If one of these companies was to go into bankruptcy, I would almost bet it would take (down) two of them or possibly all three,” Gettelfinger added.

With the year’s congressional calendar down to a few days, lawmakers and the Bush administration have sparred over the best way to extend help to the automakers.

The Senate bill would impose conditions on the industry, but it is unclear whether those conditions would be enough to satisfy critics.

“The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization,” Peter Morici, economist at the University of Maryland, testified. “It would be better to let them go through that process and re-emerge with new labor agreements, reduced debt and strengthened management.”

The government would take warrants for shares in exchange for aid, which would come with limits on executive compensation and a prohibition on the payment of dividends.

Automakers would also have to submit plans on how they intend to remain competitive.

RAISING CASH

The congressional proposal came as the automakers announced some immediate steps to improve their liquidity.

Ford said on Tuesday it would sell a 20 percent stake in Japanese automaker Mazda Motor Corp. Ford will raise more than $538 million from the sale and remain Mazda’s top shareholder with a stake of just over 13 percent.

For its part, GM said on Monday it would delay incentive payments to its U.S. dealers by two weeks. The payments for dealer incentives, which are made weekly, will be delayed from November 28 until December 11, a spokesman said.

There is also a question whether the automakers would continue their sponsorship of sporting events and whether they would rein in spending on advertising.

MARKET FEARS

The auto companies argue a bailout is justified because one in 10 U.S. jobs depends on them.

GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs at suppliers, dealers, car haulers and rental companies.

But the breadth of the automakers’ impact is not limited to the United States.

Failure of even the smallest Detroit automaker would result in the loss of as many as 70,000 jobs in Canada alone, Canadian Auto Workers union Ken Lewenza said.

“I am hopeful that Washington politicians will recognize the importance of the auto industry to the economy, and that’s not just the U.S. economy but the North American economy,” he said.

It is anticipated that funds from the new bailout would be doled out according to immediate need.

“Applicants would receive priority based on their magnitude on the overall economy as measured by employment, manufacturing, components and dealerships,” wrote Citigroup analyst Itay Michaeli in a note. “Based on this, we roughly estimate Detroit 3 eligibility as follows: GM ($11 billion), Ford ($7 billion) and Chrysler ($6 billion).”

Other analysts also saw GM as the biggest beneficiary from the new bill.

“The bill favors GM over smaller competitors, as it prioritizes on the basis of impact on the US economy,” said Brian Johnson, Barclay’s autos analyst wrote on Tuesday.

GM shares closed down 2.8 percent at $3.09, and Ford shares were down 2.3 percent at $1.68.