Chrysler has shut down operations for a month in response to the dramatic fall in demand for new cars.
Workers at the company's 30 US plants will get an extended Christmas holiday on reduced pay, supplemented by unemployment benefits.
From tomorrow, factories will be idled and staff will not return until January 19th.
Chrysler has told the government it will not have enough cash to survive into the new year without substantial state aid.
The credit crunch has made it difficult for consumers to get financing for new cars, while the downturn has sapped demand for expensive purchases.
Ford has also said it will close ten of its US plants for an extra week in January, while General Motors is shutting down 30 per cent of its North American production.
A bailout for the US car industry was rejected in the Senate, leaving the sector teetering on the brink of bankruptcy.
The White House has pledged help and is currently looking for a way to take money from the $700 billion banking bailout bill.
However, even if the big three carmakers secure loans from the government, it is likely there will still be consolidation.
The Wall Street Journal has reported Chrysler and General Motors have reopened merger talks, after earlier discussions collapsed amid falling sales.
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