President Obama this week delivered a believable, sharp and necessary ultimatum to U.S. automakers. “We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars,” he declared. It wasn’t exactly rhetoric worthy of Dirty Harry, but we hope it will cause General Motors and Chrysler to undertake the financial and structural reforms they have been avoiding.

Since December, the federal government has funneled some $17.4 billion into the two companies. GM and Chrysler had agreed, as a condition of the loans, to significantly alter their business plans, negotiate further concessions from union workers, and restructure or eliminate billions of dollars worth of debt by March 31. The president announced a day early that the companies had come up more than a few dollars short. But rather than immediately cut the companies off from the dole, as the December agreement allowed, Obama offered them a last chance to make a go of it.

The administration, which concluded that Chrysler has no chance of succeeding as a stand-alone enterprise, gave the company 30 days to complete a merger with Italian auto manufacturer Fiat. Chrysler was offered an additional $6 billion if it consummates the deal, and it was threatened with a fund cutoff if it fails. Obama was both more generous and more demanding with GM. Chairman and chief executive G. Richard Wagoner Jr., who faced the possibly impossible task of turning around the long-ailing auto giant in the midst of the deepest financial and credit crisis in a generation, was forced out by the White House. Obama praised GM for making progress on eliminating waste and rethinking product lines, but he rightly insisted on more: more cuts, more streamlining, more restructuring.

It is important that the president did not flinch in demanding even deeper concessions from workers. And he was right to keep on the table the possibility of a court-supervised bankruptcy, in which contracts can be ripped up and debts erased with little input from unions and little promise of creditor payback. All sides should work to avert this possibility by making tough decisions that will keep the company alive and preserve as many jobs as possible.

The administration has a delicate task. It must be careful not to undermine the ability of GM’s new leaders to make market-driven decisions they believe are in the company’s long-term interest. Yet it must not let up on holding accountable an enterprise whose very existence is being made possible by taxpayer dollars.