Washington  - General Motors' has blazed a path through bankruptcy, faster than even the US government expected, but there are still plenty of pitfalls for the US car industry going forward.

A New York bankruptcy court's approval late Sunday of what amounts to a government takeover of General Motors marks a major victory for US President Barack Obama.

While an appeal is pending, Judge Robert Gerber's ruling means the Detroit-based manufacturer should emerge this month from bankruptcy. The plan is to sell GM's best assets into a new company under the majority control of the US and Canadian governments.

But the Obama administration will have to tread carefully in the coming months. Critics have already dubbed the company "Government Motors" and argue that governments have poor track records at the helms of failed firms.

GM is being kept alive with more than 50 billion dollars in taxpayer money, in exchange for a 60-per-cent stake for the US government. But Obama said he has "no interest" in running GM, calling the administration a "reluctant shareholder."

On June 1, GM became the largest US industrial firm ever to file for bankruptcy. Its exit from the process this month would beat even the best expectations of the Obama administration, which initially set a goal of two to three months.

It comes less than a month after GM's smaller US rival, Chrysler, left bankruptcy in the embrace of Italian carmaker Fiat - also with the help of billions of dollars in government loans.

For the US car industry, and especially for the rust-belt state of Michigan where the US manufacturers are based, GM and Chrysler's re- emergence represent disasters narrowly averted.

US carmakers have been reeling ever since the financial crisis, brought on by the collapse of investment bank Lehman Brothers in September 2008, sent the wider US economy into its deepest recession since the 1930s. Car sales have plunged more than 35 per cent in that time.

The complete collapse of GM and Chrysler would have cost 1.3 million jobs by the end of December 2009, according to the Michigan- based Centre for Automotive Research (CAR).

GM's liquidation would have sparked an "industrial Lehman Brothers situation" and "probably squashed any potential market recovery at all," CAR's chief economist Sean McAlinden told the German Press Agency dpa.

Judge Gerber cited those risks as the key reason for his quick ruling, which came after the court rejected about 850 challenges from creditors and dealerships left out of GM's reorganization plan.

This is only the beginning. Gerber said a government takeover was GM's only viable option, a last-gasp effort "to prevent the death of the patient on the operating table."

The Obama administration will now have to walk a fine line between managing its investment while not appearing to control GM's day-to- day operations.

McAlindon said that any effort by Obama to run GM will be "spotted immediately" by conservatives and watchdog groups. That means GM chief executive Fritz Henderson will likely remain in charge of turning the failing company around.

"There's too may critics out there for Government Motors to work," McAlindon said.

Making GM profitable still involves more painful restructuring. Long known for petrol-guzzling models that have gone out of favour, GM is in the midst of a difficult shift toward greener models that will be key to its survival.

GM's loss-making brands are being liquidated or sold, including Pontiac, Saturn and Hummer. German subsidiary Opel and Swedish maker Saab are being sold off.

GM still plans to close 14 plants in North America by the end of 2012 and to end contracts with one third of its dealership network. The hope is to become profitable by 2012 in a much smaller US car market. (dpa)