WARREN, Michigan (Reuters) - Republican White House hopeful John McCain told embattled GM employees on Friday he backs their development of an electric car and said Americans should be able to receive $5,000 tax credits to buy them.

Battered by a deepening slump in sales and concerns about whether it can ride out an economic downturn, General Motors Corp. is counting on the Volt to break its reliance on gas-guzzling vehicles at a time when truck sales are tumbling and fuel prices are near record levels.

McCain celebrated the electric plug-in Volt during a visit to the GM Technical Center, which employs 17,000 people, in the presidential election battleground state of Michigan.

He said it could represent the answer to U.S. dependence on foreign oil as well as energize the country's devastated manufacturing base, adding: "The old jobs are not coming back."

"The eyes of the world are now on the Volt," McCain told GM employees gathered around him in a campaign town hall meeting.

He called the Volt, expected to roll off the assembly line in 2010, a "key and vital and integral part of our ability to break our dependence on foreign oil."

McCain's rival in the November election, Democratic candidate Barack Obama, also said on Friday that he supports consumer tax incentives for fuel-efficient cars. In a letter to the United Auto Workers, Obama touted tax credits and loan guarantees for auto companies to help them overhaul their plants.

"We need to make sure our automakers are ready to build these next generation of vehicles right here in the United States," Obama said.

Chrysler plans to launch all-electric vehicles in the next three to five years. Ford, which is building 20 plug-in hybrid SUVs on a demonstration basis, has said it expects to have a mass-market car in five to 10 years.

Toyota is racing with GM to develop rechargeable hybrid vehicles using lithium-ion batteries.

AUTO INDUSTRY SLUMP

GM, reeling from an industry slump, on Tuesday announced a plan to cut costs by $10 billion and reduce white-collar costs by 20 percent, a step expected to mean the loss of thousands of jobs among the 40,000 salaried workers that GM employs in North America.

The restructuring, GM's second in six weeks, was forced by high fuel prices, a consumer shift away from low-mileage trucks, the weakest U.S. auto sales in a decade and growing investor doubts about the automaker's ability to ride out the downturn.

McCain said he backs $5,000 tax credits for American consumers who buy the Volt and other electric cars that are in development in the United States.

He predicted that green technologies will create thousands of jobs and told the workers: "I will do everything in my power to make sure you succeed."

McCain was given a look at a prototype Volt and climbed behind the wheel as GM CEO Rick Wagoner and other executives explained details of the vehicle.

GM is designing the Volt to run for 40 miles on a lithium-ion battery pack that can be recharged at a standard electric outlet. It will also capture energy from braking, like a traditional hybrid, and feature an on-board engine that will be used to send power to the battery on longer trips.

McCain said he backed states being able to set fuel-mileage standards for cars -- a position opposed by the Big Three automakers, which support federal authority over mileage standards.

"We have a disagreement," he told reporters. "It's hard for me to tell states that they can't impose whatever standards would apply in their state."

McCain also backs the use of ethanol as an auto fuel, saying every car made in America should have a flexible-fuel capability. But he opposes subsidies for the ethanol industry.

"It's distorting the market," he said.

(Editing by Xavier Briand)

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