General Motors has urged employees to contact their local members of congress and demand immediate aid to the beleaguered Detroit-based auto industry. A similar plea has also gone out to dealers, according to US reports, as house of representatives Democrats began to rally round the automakers and the treasury moved to free credit, though without any direct aid to the vehicle manufacturers.

A memo to employees, seen by just-auto, was signed by GM North America president Troy Clarke and urged employees to stress the likely effect on jobs should GM go under.

“The consequences, however, of a portion of the domestic auto industry collapsing extend far beyond GM’s ability to continue its transformation,” the memo said.

“One in 10 American jobs depend on our industry, as well as the health of communities, dealers and suppliers in all 50 states. As you know, nearly 3m employees, retirees, and their families also depend on us for their pensions and health care. Because of our economic contribution, the cost of allowing this industry to fail would be catastrophic: 3m jobs lost within the first year; US personal income reduced by $150.7bn; a government tax loss over three years of more than $156bn.

“This level of economic devastation far exceeds the $25 billion of government support that our industry needs to bridge this current period.”

The memo included a document of talking points covering GM’s restructuring, the shift of healthcare to a union-controlled trust fund, pensions, and future technology development such as the VOLT electric car.

It also contained a phone script for employees to use when talking to their representative in Washington.

Reuters reported that US sales chief Mark LaNeve told dealers to call representatives and senators to ask them to support GM and the auto industry, saying 3m jobs were at risk if the industry does not receive urgent government funding.

“As we’re in the midst of the deepest crisis our industry has ever faced, GM’s priority is on seeking support from various US government agencies and congressional leaders,” LaNeve said in a letter to dealers obtained by Reuters.

Separately, GM executives also held a broadcast for employees on Wednesday, urging them to contact their representatives and senators in support of any measures to provide immediate liquidity to the US auto industry, a GM employee told the news agency.

LaNeve said GM needs the quick appropriation of the first $25bn loans already approved by congress and needs a second package of another $25bn in loans to “weather the storm”, a dealer told Reuters.

“GM asked all the GM dealers and hundreds of thousands of employees to contact their congressmen and senators to approve this as quickly as possible,” the dealer told the news agency.

In other developments, congressional Democrats are working on a new law that would provide an extra US$25bn in emergency loans to the auto industry in exchange for the government taking a stake in the Big Three. A post-election ‘lame duck’ session of the house is scheduled for next Monday.

It was reported that new legislation being drafted by representative Barney Frank, who chairs the house financial services committee, would dip into the $700bn Wall Street rescue fund, approved by congress last month, for the extra auto aid. The industry has already been granted $25bn in new technology development/plant retooling loans but the funding tap doesn’t open until next year, a problem for the cash-strapped automakers, in particular, GM, which has said it may run out of liquidity early in the new year.

But there have been suggestions that senate Republicans may be reluctant to agree to any new money after being mauled in last week’s election over their earlier support for the financial sector.

Minority leader senator Mitch McConnell has said congress should move instead to speed the release of the $25bn loan approved earlier.

Reuters reported Frank would hold a hearing on 19 November attended by big three CEOs Rick Wagoner of GM, Alan Mulally of Ford and Bob Nardelli of Chrysler .

United Auto Workers president Ron Gettelfinger would also testify before Frank’s panel next week, a union official told the news agency. The four men had lobbied house and senate Democratic leaders last week on the need for a rescue.

Frank is expected to produce a draft bill in time for the executives to review it before the hearing.

Financial services panel spokesman Steve Adamske told Reuters the hearing would “allow the companies to come in and present a case” on why the bailout “is necessary and what’s at stake.”

Adamske said the panel would want to know, in part, how any bailout money would be spent.

Then, in the latest twist, the US treasury on Wednesday abandoned the original strategy behind its $700bn effort to rescue the financial system, as administration officials acknowledged that banks and financial institutions were as unwilling as ever to lend to consumers.

According to The New York Times , treasury secretary Henry Paulson now plans a major new lending programme that would be run by the federal reserve bank and aimed at unlocking the frozen consumer credit market.

The program, still being worked on, would, for the first time, use bailout funds specifically to help consumers instead of banks, savings and loans and Wall Street firms.

Treasury officials told the paper they hoped to invest about $50bn from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases.

The plan is for the treasury to put up about 5% of the money that a company would use for lending and private investors would put up perhaps 20 times that much by buying bonds issued by the new programme.

The original plan for the $700bn was to have the treasury buy hundreds of billions of dollars worth of illiquid mortgage-backed securities in order to free up banks to resume normal lending, the New York Times said.

The paper noted the scheme is still called the Troubled Asset Relief Programme, or TARP, but it will not buy troubled assets.

“Our assessment at this time is that this is not the most effective way to use TARP funds,” Paulson said, according to the New York Times.

Instead, the treasury will step up its programme of injecting capital directly into banks and, for the first time, expand it to include financial companies that are not federally regulated banks or thrifts.

But Paulson made it clear he would not use treasury money to help bail out the automobile industry, rebuffing pleas from both the Big Three and the Democrats.

That left open the prospect of providing ‘back door’ support to the car companies by offering to recapitalise non-bank financial companies like GE Capital and CIT Financial , and the financing subsidiaries of Ford, Chrysler and GM, the paper said.

“I know the automakers are important to the United States,” Paulson was quoted as saying.

“We care about the automobile industry.” But he cautioned that “my focus is on the financial sector – getting credit going, getting lending going.”