U.S. President Barack Obama rejected the restructuring plans from GM and Chrysler Monday and gave the automakers a short window to revise their bids if they want to receive federal bailout money.
GM has already received US$13.4 billion in government loans while Chrysler was given US$4 billion during the economic downturn.
In February, GM asked for $16.6 billion more while Chrysler sought $5 billion more.
However, Obama said the restructuring plans from both companies did not go "far enough to warrant the substantial new investment."
As a result, Obama's administration is now giving both companies a limited time period to revise their business plans.
Obama said more "painful concessions" were going to be necessary from unions and workers.
"We cannot make the survival of our auto industry dependant on an unending flow of taxpayer dollars," Obama said from the White House.
"These companies and this industry must ultimately stand on their own, not as wards of the state."
The Obama administration is now giving GM enough government assistance to restructure over the next 60 days.
"The United States government has no interest in running GM," Obama said.
"...What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis as a stronger and much more competitive company."
On the weekend, the White House asked General Motors Chief Executive Rick Wagoner to step down.
Obama praised Wagoner for his distinguished career but said a new direction was needed.
Meanwhile, Obama said the situation with Chrysler was much more challenging.
"We've determined after careful review that Chrysler needs a partner to remain viable," Obama said, adding that a deal was possible with Italian automaker Fiat SpA.
The Obama's administration is giving Chrysler 30 days to complete a partnership with Fiat.
"If they are able to come to a sound agreement that protects American taxpayers we will consider lending up to $6 billion to help their plan succeed," Obama said.
"If they and their stakeholders are unable to reach such an agreement -- and in the absence of any other viable partnership -- we will not be able to justify investing additional tax dollars to keep Chrysler in business."
Chrysler will also receive working capital during the next 30 days.
Obama said bankruptcy could be an option for either automaker if their revised bids fail.
However, he said Americans shouldn't fear buying cars from GM and Chrysler.
"Starting today the United States government will stand behind your warranty," he said.
Obama said the Canadian government has indicated their support for the U.S. plan.
With files from The Associated Press
