Nov. 18 (Bloomberg) -- The U.S. economy would suffer a ``catastrophic collapse'' if domestic carmakers fail, General Motors Corp. Chief Executive Rick Wagoner said, as the nation's auto industry renewed appeals to Congress for federal aid.

Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, Wagoner told a Senate panel.

``Such a level of economic devastation would far exceed the government support that our industry needs,'' he said. ``This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse.''

The Big Three chief executives, Wagoner, Alan Mulally of Ford Motor Co. and Robert Nardelli of Chrysler LLC, testified today at a hearing called by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. The companies are seeking $25 billion in loans to keep them operating.

Congressional Democrats propose tapping the recently enacted $700 billion financial rescue package for the aid. President George W. Bush and Senate Republicans said they oppose that approach and instead prefer using $25 billion that was earlier approved by Congress to retool auto plants.

Senate Majority Leader Harry Reid said he didn't think the idea of using the earlier-approved Energy Department loans for the aid would be ``going very far in our caucus.'' The impasse dimmed prospects for aid approval during this week's lame duck session of Congress.

`Tremendous Risk'

``A decision to make government assistance available makes much more sense than taking the tremendous risk to our already- fragile economy that come with inaction,'' Mulally testified.

Nardelli said, ``Without immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations.'' If Chrysler was forced to declare bankruptcy, he said in prepared testimony, ``we cannot be confident that we will able to successfully emerge.''

A first quarter 2009 bankruptcy could cause U.S. gross domestic product to shrink by at least 4 percent as U.S. auto production would slide by 30 to 35 percent, according to an analysis released today. Unemployment would immediately increase to 8 to 8.25 percent, according to the analysis by Deutsche Bank economist Joseph LaVorgna.

Taxpayers Help

``I support efforts to assist the industry, not because their leaders necessarily deserve the taxpayers' help,'' Dodd said as the auto chiefs looked on. Aid is needed ``to minimize the possibility of a destabilizing event in the economy.''

Senator Richard Shelby of Alabama, the committee's top Republican, said the panel must determine the long-term outlook of automakers before deciding on the aid.

``Is $25 billion enough?'' Shelby said. ``Is this the end or just the beginning?''

Senator Charles Schumer, a New York Democrat, said automakers are ``too vital to let fail,'' though he was concerned they would be back in months to seek more dollars unless Congress requires an industry overhaul. ``We need a business model based on cars of the future.''

Senator Jim Bunning, a Kentucky Republican, said the Democratic aid plan ``is not a serious one'' and is ``virtually a blank check'' that doesn't require concessions.

Needing 60 Votes

Democrats in the Senate probably need 60 votes to advance their plan and they hold only a 50-49 majority. Bush spokeswoman Dana Perino said yesterday the Senate lacks the votes to pass the Democrats' legislation.

Senate Republican leader Mitch McConnell of Kentucky said earlier today the $25 billion in the previously approved Energy Department loans should be expedited as an alternative to the Democratic plan. The loans were part of the 2007 energy bill and are designated for retooling auto plants to help build smaller and alternatively powered cars.

Senator Carl Levin of Michigan, who helped write the Democratic legislation, said he is open to alternatives. ``We need to see language of people who have different paths to the common goal, so we can try to reconcile them,'' he said.

Wagoner said GM was ``well on the road to turning our North American business around'' when the global credit crisis hit. GM had reached an agreement with the United Auto Workers union and in 2009 will offer 20 models that get at least 30 miles per gallon on the highway, he said.

``The recent plunge in vehicle sales threatens not only GM's ongoing turnaround but our very survival,'' he said.

Mulally disputed what he described as recent ``highly critical'' commentary on automakers, saying the critics don't grasp that ``we at Ford are on our way to realizing a complete transformation of our company.''

Ford has been changing its model mix, accelerating the development of fuel-efficient vehicles and has closed 17 plants in North America, Mulally said.

``America's auto companies are investing in innovation,'' Nardelli said. ``Chrysler plans to emerge from the current downturn as a lean, agile company.''

To contact the reporter on this story: John Hughes in Washington at Jhughes5@bloomberg.net.

Last Updated: November 18, 2008 17:20 EST