The White House says it is considering using some of the $700 billion fund it set up to bail out the financial sector to prevent a collapse of the big three US car makers.

White House spokeswoman Dana Perino was speaking to reporters aboard Air Force One as President George W Bush headed to Texas.

A willingness to consider use of these funds marks a dramatic reversal for the Bush administration. It comes after a proposed bail-out of General Motors, Chrysler and Ford failed in the Senate on Thursday night, raising the prospect of the industry's collapse.

The White House said the US economy could not withstand a 'body blow' such as the disorderly bankruptcy of car firms.

Senate talks on a $14 billion car bail-out package, backed by Democrats and the White House, broke down after Senate Republicans stuck to their demand that US wages should be brought swiftly in line with those paid by foreign rivals.

Republican Senator Bob Corker, who spearheaded the alternative proposal, attributed the breakdown to differences over employee pay and said that a union representative from the United Auto Workers was present for the talks.

After warning it could run out of money within weeks, the largest US car maker GM acknowledged ahead of the vote that it was considering 'all options', including bankruptcy, and had hired a team of legal advisers.

The legislation would have provided GM and Chrysler bridge loans to operate until March 31, the date by which they must have crafted a restructuring plan that ensures their long-term survival while repaying government aid.

The bill also required the president to name a special 'car czar' who would oversee the process. Opponents of the plan have said the car makers must simply bear the burden of bad business decisions and declare bankruptcy.