The U.S. government prompted a radical restructuring of the global auto industry by giving two of the largest manufacturers just weeks to overhaul or seek bankruptcy protection.

General Motors Corp. (GM) and its stakeholders face the starkest choices, provided with just 60 days to find a path to viability after the U.S. government's auto task force deemed their existing efforts to be not viable.

Chrysler LLC is being guided towards bankruptcy protection, with or without an alliance with Fiat SpA. The Italian company's CEO, Sergio Marchionne, has been a leading industry voice in suggesting the sector will inevitably consolidate around five or six global groupings.

GM's own global expansion, including a disastrous prior liaison with Fiat, lies in tatters as it shrinks its domestic business and seeks to offload overseas operations, including possible control of its Opel unit in Europe.

Global auto sales are falling dramatically in mature markets, while growth in once-profitable emerging markets has slowed, forcing the global industry to cut production and seek cost-cutting partnerships.

The existing web of company alliances aimed at reducing development costs faces a radical shakeup, whether or not GM and Chrysler meet the latest U.S ultimatum.

GM, unlike Chrysler, has scraped into the "too big to fail" league previously afforded to a select group of financial institutions supported by the Obama and Bush administrations.

However, the auto task force has gone well beyond the "self-help" measures flagged by GM for its path to survival, with the ouster of CEO Rick Wagoner the most visible sign.

Wagoner has overseen recovery plans based on over-optimistic assumptions about sales and margins in a deteriorating market environment, a tactic that he shares with many others in the industry.

The board of PSA Peugeot Citroen, also long seen as a potential partner for Fiat, ousted CEO Christian Streiff Sunday. Toyota Motor Co. and Honda Motor Co. will both install fresh CEOs later this year when the incumbents reach mandatory retirements.

Amid the shake-up in the global executive ranks of the industry, the U.S. actions will be closely watched by governments in Europe, Canada and parts of Asia which have also been approached by GM for state aid.

GM has failed to secure agreement with bondholders or unionized employees ahead of the March 31 deadline set by the administration.

The company, like Chrysler, is in the midst of negotiating with bondholders and the United Auto Workers over reducing billions of dollars in obligations owed to both groups.

Those negotiations have been at a virtual standstill for weeks as the bondholders and the union each demanded more sacrifice from the other. Representatives from both groups could not immediately be reached for comment late Sunday

GM's Wagoner was not central to the discussions, a role in which interim CEO Fritz Henderson has a higher profile.

- Sharon Terlep, Dow Jones Newswires; 248-204-5532, sharon.terlep@dowjones.com