WASHINGTON - The US government will loan US$5.9 billion (S$8.59 billion) to Ford Motor Co. and 1.6 billion dollars to Japanese automaker Nissan to invest in improving the fuel economy of their US-built vehicles, officials said Tuesday.

The loans are the first awarded out of a 25-billion-dollar program to help automakers meet upcoming fuel efficiency standards, Energy Secretary Steven Chu said at a press conference.

"I'm pleased to announce eight billion in provisional loan agreements that will drive innovation in fuel efficiency and help revolutionize the automobile industry in America," Chu said.

"These loans will help the auto industry meet and even exceed the president's tough new fuel standards while creating jobs, reducing our dependency on foreign oil and ensuring America's competitiveness."

Another 465 million dollars will be loaned to electric sports car maker Telsa.

Additional loans will be awarded to "large and small automobile manufacturers and parts suppliers up and down the production chain" over the coming months, said Chu, who vowed to release the funds as quickly as possible.

The energy department began discussions with Chrysler "the day they emerged from bankruptcy" protection and has already begun reviewing the technical aspects of General Motors's request in the hopes that it will successfully emerge from bankruptcy protection, Chu told reporters.

Ford will use the 5.9 billion dollars retool plants in five states and boost the fuel efficiency of close to two million new vehicles annually.

The department of energy estimates these upgrades will lead to fuel savings of more than 20 million gallons of gasoline a year.

That would produce a savings of more than half a billion dollars a year for US drivers at current fuel prices, Chu said.

Nissan will use the loans to modify its Tennessee plant to produce zero-emissions electric vehicles and the lithium-ion battery packs to power them.

With this loan, "Nissan expects to cut the costs of its batteries in half and ramp up production of 150,000 American-made competitively priced electric vehicles annually," Chu said.

Ford chief executive officer Alan Mulally embraced the "historic green partnership" and said the automaker was committed to investing nearly 14 billion dollars in advanced technology vehicles in the next seven years.

"Ford is absolutely committed to fuel economy leadership with every new model we introduce," Mulally said.

"We are transforming our vision, retooling our manufacturing plants and bringing to the market new, more fuel efficient vehicles." Nissan welcomed the loan and said it is "committed to being a leader in zero-emissions mobility."

"This loan is an investment in America," Dominique Thormann, senior vice president for Nissan North America said in a statement.

"It will help us put high-quality, affordable zero-emissions vehicles on our roads."

Nissan plans to begin selling electric vehicles in the United States in 2010. They will initially be imported from Japan but production will shift to Tennessee once the Smyrna plant is up and running in late 2012.

California-based Telsa Motors said it will use 365 million dollars for production, engineering and assembly of the Model S, an all-electric family sedan that carries seven people and travels up to 300 miles per charge.

The additional 100 million dollars will be used for a powertrain manufacturing plant.

A study published Monday found that even tighter fuel efficiency rules could help boost the profits of General Motors, Ford and Chrysler by three billion dollars a year.

The University of Michigan study found that the Detroit Three have vastly underestimated the American public's willingness to pay a premium for fuel-efficient vehicles.

The study found that an industry-wide mandated increase in fuel economy of 30 per cent to 50 per cent - from roughly 35 to 40.4 miles per gallon - would boost demand by enough to occupy two additional large assembly plans.