The Obama administration, wading deeply into the U.S. auto industry, is weighing a fix for General Motors Corp. and Chrysler LLC that would divide their "good" and "bad" assets and send the auto makers into bankruptcy to purge their biggest problems.

The potential move would transform two companies that have helped define U.S. industrial power over the past century. Following the ouster of GM Chief Executive Rick Wagoner, it would represent one of the biggest-ever government incursions into private enterprise.

And...