I agree, spelling out the consequences really isn't the best way to do things.  I don't like to throw out that kind of negativity.  I would love to say all of my students have been terrific, but that wouldn't be the case.  I have had some not so good ones.  And the biggest hammer I have is the letter of recommendation.  And I will use that when needed.  I can think of one research student I had that was essentially kept out of medical school due to my letter.  And you should all be thanking me.  

I'd add my voice to this. I attract well more than my fair share of students who have not done well in the chem major. Many of them aren't the best book learning/classroom students. I try to spell out for them my expectations, but then I couch it in the following way. "Student X, you have a Y.Z GPA in chemistry. We both know you haven't done as well in your coursework as you might have liked. Research is a second opportunity. A lot of students come alive in the research lab, and do great science. They discover that they're lab rats, love it, have an aptitude for it. Those students come out with letters of rec that say, 'ignore the GPA, this guy/gal can flat out do lab science'. You can't change your GPA, but you have a clean slate actually doing chemistry. This is your opportunity to really shine."

Maybe a third actually take that up for what it's worth, and they get into grad school or get a good job. Maybe not at the absolute top of the field, but they do fine. Maybe two thirds don't. But I've never been the sort to increase the beatings until the morale improves. I'm not interested in writing the rec letter that says, "This chemist will work hard under the lash."