California Attorney General Jerry Brown says that the US federal government may have to bail out the American auto industry to the tune of several billion dollars to keep it in business.
"The American auto industry is in deep trouble and they may require subsidies," said Brown, a three-time US presidential candidate and former California governor.
"They may have to be bailed out by the federal government that has just enabled their inefficiency and their gas guzzling."
Brown spoke to reporters as the US 9th Circuit Court of Appeals hears arguments on a lawsuit brought by 12 states against federal fuel efficiency standards, which they say are too weak.
"It may be to protect jobs, to protect our own domestic industry, they (US automakers) are going to require billions of tax support," said Brown, a Democrat.
The US automobile industry has seen its US market share decline for years with Japanese automakers growing stronger.
Brown spoke on the day DaimlerChrysler said it would sell most of its ailing Chrysler Group to private equity firm Cerberus for only a fraction of the $US36 billion ($A43.32 billion) price it paid to create the transatlantic merger nine years ago.
Also on Monday, Ford Motor's founding family said it was not discussing sale of its controlling stake in the second largest American automaker, despite a meeting last month with a Wall Street advisory firm. Ford, which posted a record loss last year, has been cutting jobs and shutting factories.
The 12 states, which include New York, sued a year ago, saying the US National Highway Traffic Safety Administration failed to meet federal laws requiring the government to determine the impact of regulation on fuel conservation and the environment. Brown said inadequate standards worsen an energy crunch and contribute to air pollution and climate change.
In court papers, the National Highway Traffic Safety Administration argues the minimum miles-per-gallon requirements balance "economic practicability and technological feasibility" and says the standards are not aimed at environmental protection but at energy conservation.
The court typically takes months to issue a decision after hearing oral arguments.
Also on Monday, President George W Bush outlined a plan to cut US gasoline use by 20 per cent by 2017. He wants to develop regulations to raise US biofuels production five times current levels and increase auto fuel economy standards by 4 per cent annually to about 34 miles per gallon (55 km per 3.79 litres).
Attorney General Brown said poor fuel efficiency was one reason for the US automaker financial woes.
"The auto companies are in such a mess, because they persistently refuse to build fuel-efficient cars, that they might find it financially impossible to do the right thing," he said.
"If that proves to be the case, I think Congress has to look at ways of helping them."
After a November meeting with Bush, US automakers said that under no circumstances were they seeking a government bailout. The US government bailed out Chrysler in 1979-80 amid fears the car manufacturer was heading to bankruptcy.
The Alliance of Automobile Manufacturers, based in Washington, DC, declined to comment.
California in September also sued General Motors, Ford Motor, Toyota Motor, the US arm of Germany's DaimlerChrysler AG and the North American units of Japan's Honda Motor and Nissan Motor over greenhouse gas emissions.
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