Automotive manufacturing leviathans General Motors and Chrysler have been given notice by US president Barack Obama of up to two months to come up with viability plans or to face bankruptcy.
The car giants have been kept afloat by government loans, but the president is now moving to withdraw that support.
"These companies and this industry must ultimately stand on their own - not as wards of the state," he said.
Chrysler could face bankruptcy if it does not seal a proposed merger with Italian car-maker Fiat within the next 30 days.
The US government has already forced the removal of GM's chief executive Rick Wagoner, who has been replaced by Fritz Henderson, the company's current president. Henderson is charged with overhauling the company's board. President Obama says failure of the industry is not an option, underscoring that “we cannot, we must not, and we will not let our auto industry simply vanish".
Mr Obama is confident the industry can be saved but indicated that jobs were not safe and plants may not re-open.
However, the US Treasury has vowed to back the car warranties of the two firms, a move aimed at shoring up confidence in consumers still considering buying from the automakers.
The action by the government follows a government task force report that warned neither GM or Chrysler has met the strict conditions laid down by the $US17.4 billion government bailout agreed late last year.
The report said the plans submitted had not established “a credible path to viability".
The Australian Manufacturing Workers Union says an end to General Motors might not mean an end to Holden in Australia.
"The simple reason is that the small vehicle, which will be coming down the production line at Elizabeth in around about September next year, is being supported by the new Green Fund from the Federal Government to the tune of $148 million, also the support from the State Government of $30 million," AMWU’s John Camillo said.
"They can produce a small vehicle; they don't rely on the United States parent company for any funding so therefore if things don't go according to plan at GM in America and they go into bankruptcy, I think Holden at Elizabeth can stand on its own two feet."
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