The next three months will be a wrenching time for every player in the North American motor industry as the Detroit carmakers seek to prove their long-term ­viability.

The scale of the task was underlined by Bob Nardelli, Chrysler's chief executive, just minutes after President George W. Bush outlined the government's $17.4bn bail-out for General Motors and Chrysler yesterday.

Mr Nardelli made clear in a letter to employees and other stakeholders that Chrysler will be seeking sacrifices from suppliers, dealers, lenders and the United Auto Workers union.

What the bail-out means

Wages and work rules must be "competitive" with non-union, foreign-owned plants in the US by the end of 2009. Half of companies' contributions to new union-administered healthcare fund will be paid in shares. The "jobs bank" must be eliminated.

Debt must be reduced by two-thirds through a debt-for-equity exchange. No dividends permitted while government loans remain unpaid. The government will receive warrants equal to 20 per cent of loans. Government loans will be senior to other debt "to the extent permitted by law". This suggests that the loans rank above GM's $36bn in unsecured bonds but not above $6bn in secured bank debt. Companies must report, and the government can veto, all transactions over $100m. Limits on executive compensation. Elimination of perks such as corporate jets. Bonuses and compensation can be clawed back. New agreements with carmakers must be reached by March 31 2009.

"These concessions discussions will happen quickly, as a full governmental review and approval of our plan is expected by March 31 2009," he wrote.

Rick Wagoner, GM's CEO, added: "We know we have a lot of work in front of us to accomplish this (restructuring) plan. Our goal is to reinvent our company."

Under the lifeline announced on Friday, GM and Chrysler must prove over the next three months that they are "financially viable".

If they are unable to do so, they will be denied further infusions of taxpayer dollars, and be required to repay the short-term loans within 30 days. In other words, they would have little choice but to file for bankruptcy � and possibly liquidation.

The third Detroit carmaker, Ford, has said it does not need short-term loans, but has asked for access to $9bn in credits later if US car sales continue to slide.

The most contentious condition of the package could be the goal that the Detroit companies achieve wages and work rules "competitive" with their non-unionised foreign rivals with plants in the US, such as Toyota, Honda and ­Daimler.

The United Auto Workers union has maintained until now that it has done more than its fair share to close the gap.

Under contracts negotiated last year, the union agreed to a "two-tier" wage structure that allows the carmakers to hire new workers at $14.20 an hour, roughly half the wage paid by Toyota and Honda.

The union went further this month, agreeing to suspend the controversial "jobs bank" under which workers at mothballed assembly lines are paid full wages and benefits just for showing up at the plant each day.

Even so, the UAW is likely to come under pressure for further concessions, including a rollback in existing workers' pay.

Fritz Henderson, GM's president, said yesterday that GM had closed "a substantial amount of the gap", but there was still some way to go. The UAW had no immediate comment.

Regarding suppliers, Mr Nardelli said Chrysler, strapped for cash, would ask them to maintain their commitment to reasonable trade terms and normal fulfilment of orders.

Moves to consolidate dealer networks are to accelerate. GM has five times more dealers than Toyota even though it sells only slightly more vehicles.

But strict state franchise laws make it difficult to shut dealerships without costly compensation.

Calls are likely to grow for the franchise laws to be revisited. Meanwhile, the Detroit carmakers will try to squeeze out weaker dealers by restricting financial support and rationalising brands.

The pain will extend well beyond North America. In Europe, GM is considering a raft of austerity measures, such as cutting the working week to four days, trimming pay, and delays of up to six months in new vehicle programmes. The aim is to keep compulsory redundancies to a minimum.

In spite of the numerous conditions, the rules contain some crucial loopholes. According to the White House, "negotiations can deviate from the quantitative targets . . . providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability".

As for the definition of the carmakers' future viability, a Treasury official said yesterday: "It's hard to pin down what the optimal outcome is."

He added the emphasis would be on the long term, suggesting that both Washington and Detroit have some wiggle room.

Copyright: The Financial Times Limited 2008

• Treasury signals rescue for carmakers