Washington  - The struggling US car industry will be given one last chance to restructure operations or lose the government's support, President Barack Obama announced Monday, declaring that General Motors Corp and Chrysler LLC had so far failed to prove that they can survive.

In a dramatic government intervention in the industry, Obama called for a series of changes in the two companies' outdated business models and forced out long-time GM chief executive Rick Wagoner, who will be replaced by the company's president Fritz Henderson.

GM, the largest US carmaker, will be given 60 days to complete deals with labour unions, creditors and others to cut costs and return to profitability. Henderson said GM would work "around the clock" to get agreements in place by the new deadline.

But the White House determined that Chrysler is unable to survive on its own. The third-largest US carmaker was given 30 days to reach an agreement to partner with Italian firm Fiat Motors SA, and the two firms announced a deal within 90 minutes of the president's speech.

US stocks plunged more than 3 per cent on Obama's announcement. GM's share price tumbled more than 20 per cent to 2.88 dollars in morning trading on Wall Street.

Obama said he was committed to the survival of the US car industry, which has been brought to the brink of collapse in the current recession. Yet he also held out the possibility of a managed bankruptcy for one or both companies if they cannot restructure on their own.

"We cannot, and must not, and we will not let our auto industry simply vanish," Obama said. "But we cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars."

US car sales plummeted more than 35 per cent over the last few months, but the industry has also been roundly criticized for failing to modernize and produce more fuel-efficient cars in the face of growing competition from Asia and Europe.

More than 400,000 jobs have been in the past year as the industry cut costs. Michigan, where the US carmakers are based, has the highest rate of unemployment in the country. The industry contributes about 4 per cent to US economic output.

The US government agreed in December to give GM 13.5 billion dollars and Chrysler 4 billion dollars in emergency loans, but set a deadline of Tuesday for both to complete their restructuring efforts. Ford Motor Co has not requested any government money.

Chrysler has asked for another 6 billion dollars in government loans and GM says it could need more than 20 billion dollars. But Obama said "neither goes far enough to warrant the substantial new investments that these companies are requesting."

Obama said the survival of the industry would require sacrifices from labour unions, creditors, dealers, suppliers and many other groups. The White House would provide the two companies with enough capital to survive until the new deadlines.

Both companies' warrantees will also be backed by the government and new tax incentives would be put in place to help GM and Chrysler work through the recession.

GM confirmed Monday that it will be overhauling its management in the coming weeks and that Henderson will take over as chief executive from Wagoner, who has had a tumultuous nearly nine years at the helm of the company.

"We have significant challenges ahead of us, and a very tight timeline," Henderson said. "The road is tough, but the ultimate goal - a leaner, stronger, viable GM - is one we share."

GM has lost more than 80 billion dollars in the last four years and in 2008 surrendered its title as the world's largest carmaker to Japanese rival Toyota Motor Corp.

Wagoner, 56, who joined GM back in 1977, said he was confident the company would survive the downturn without him.

"GM is a great company with a storied history," Wagoner said in a statement. "Ignore the doubters because I know it is also a company with a great future."

A son of a GM sales manager, Henderson, 50, has held a number of positions with the company in nearly all continents.

As head of the GM's German subsidiary Opel from mid-2004 through the end of 2005, Henderson restructured the company, trimming around 10,000 jobs and bringing it back to profitability for the first time in nearly five years.

Yet Opel, too, is currently seeking government funds to survive the global recession. German Chancellor Angela Merkel has said she will only help once GM's restructuring plan is in place. (dpa)