The Obama administration on Monday ratcheted up the government’s involvement in the US auto industry, raising the spectre of bankruptcy if debtholders, unions and executives at General Motors and Chrysler fail to make new sacrifices.

Condemning “a failure of leadership” from Washington to Detroit for the decline of America’s carmakers, President Barack Obama rejected the turnround plans GM and Chrysler presented to his administration last month. He said the government would fund GM for 60 days as it tries to put together a more aggressive restructuring programme. He gave smaller Chrysler 30 days to strike an acceptable rescue alliance with Italian carmaker Fiat.