The US government will provide $US17.4 billion in loans to General Motors, Chrysler and Ford to prevent a deeper economic recession.
President George Bush said on Friday that allowing the US car industry to fail would not be "a responsible course of action".
President-elect Barack Obama said the move was a "necessary step" to avoid an industry collapse that would have had dire consequences for the economy.
The BBC reports carmakers will get $US13.4 billion in short-term financing from the $US700 billion Wall Street bail-out, and another $US4 billion will be provided later.
Officials said the government set a deadline of 31 March for the "Big Three" companies to become viable.
President Bush said the US economy would be sent into a deeper and longer recession if the carmakers collapsed.
However, he said that US carmakers must make hard decisions as the industry needs to be reformed.
He added restructuring would require "meaningful concessions from all involved in the auto industry."
Officials said that General Motors and Chrysler were expected to take up the loan offer immediately.
Ford is seen as a company that does not need the money at this stage.
An attempt to secure a $US14 billion rescue fund for the carmakers was rejected by the Senate last week, raising fears of job cuts and a possible industry collapse.
The BBC reports the package does not need Congressional approval as it is part of an existing $US700 billion bail-out programme.
All car companies have announced production cuts as the economic slowdown has slashed car sales.
Chrysler, Ford and GM have repeatedly warned that millions of jobs could be lost if the government does not agree to a package of loans to support the industry.