NEW YORK (Reuters) - Is U.S. President Barack Obama bluffing?

Some General Motors Corp's GM.N bondholders and the largest U.S. auto union are betting the new president, an avid poker player, may now be using bankruptcy as a stick to get all parties to reach a deal.

At stake is the survival of GM and the entire U.S. auto industry, thousands of jobs, and about $28 billion in debt that bondholders hope to exchange for equity in a leaner GM.

The U.S. administration this week demanded the resignation of GM chief executive, Rick Wagoner, as part of the price for an extension of time for GM and Chrysler LCC to reorganize the U.S. auto sector.

In setting a two-month deadline for GM and a one-month deadline for Chrysler, the calculation from bondholders and the United Auto Workers union is that Obama is trying to force their hand and reach an agreement.

“It is a big game of chicken,” said Gregory Peters, chief U.S. credit strategist for Morgan Stanley in New York. “My gut feeling is bankruptcy is not an option for GM and Chrysler. Either in bankruptcy or out of bankruptcy, this is a high-stakes game.”

The thinking is that President Obama, who won Midwestern states such as Michigan and Ohio with strong union support, will be reluctant to put the fate of automakers and unionized workers in the hands of a bankruptcy judge.

GM, already in receipt of $13.4 billion in emergency loans, had wanted another $16.6 billion to stay in business. But the automaker’s plans to reorganize its business were deemed not radical enough to ensure long-term survival.

GM’s new chief executive, Fritz Henderson, on Tuesday said that the automaker will have to cut more than $28 billion in unsecured claims in its talks with bondholders and the UAW, implying a revamped offer to creditors.

CHANGING THE GAME

Some bond market participants worry though that the unprecedented role of government could set a dangerous example.

“We have changed the game,” said Mark Grant, managing director of structured products at Southwest Securities in Dallas. “The game changes substantially and significantly when the government is providing funds and the government is no longer the referee. They have now entered the playing field.”

One concern is that the disparate groups with an interest in the U.S. auto industry have little experience dealing with each other when it comes to systemic economic problems like saving the auto sector.

“The process could fail not because of a lack of sound economic principles but because all the parties, both public and private, are on uncharted ground,” Grant said.

In negotiations with bondholders, GM last week offered 8 cents on the dollar in cash, 16 cents on the dollar in new unsecured debt, and a 90 percent stake in the automaker, one person with knowledge of the term sheet told Reuters.

According to JPMorgan analysts Eric Selle and Atiba Edwards, GM’s swap offer would be worth about 13 cents of value -- 8 cents in cash, plus 16 cents for the new unsecured debt, which would trade at about 30 percent of par without a government guarantee.

Or bondholders can choose not to swap and be left to negotiate 5 cents of value in a bankruptcy, to avoid holding up the proceedings, Selle said in a report.

If bondholders are offered 24 cents definite value, made up of 8 cents in cash and 16 cents in government-guaranteed notes, bondholders may do the swap, Selle said.

“The solution comes down to the U.S. government’s willingness to keep GM solvent,” Selle wrote. “We believe the question isn’t whether the US government is going to support GM, it is how they are going to choose to support GM.”

The small cost of a bondholder guarantee would go a long way toward recapitalizing GM, according to Selle.

But there are risks to using a failed debt exchange, which debt investors equate to a default, or even bankruptcy, as levers.

Delphi Corp DPHIQ.PK, the former parts division that GM spun off in 1999, filed for bankruptcy protection in 2005 and had planned to reorganize as a stronger company. Delphi remains in Chapter 11, with GM effectively subsidizing Delphi's parts production.

Next week, Delphi meets in Washington with creditors, the U.S. auto task force and GM -- essentially the same situation the auto-parts maker confronted in 2005.