DETROIT General Motors Corp and Chrysler LLC made significant progress late Thursday on a deal to secure emergency loans as part of a U.S. government aid package, people familiar with the talks said.
The package would demand sweeping restructuring at the troubled automakers in exchange for bridge loans to carry GM and Chrysler for several months, according to the sources.
Emergency federal loans for the two companies could be announced by the government as early as Friday, according to the sources who were not authorized to discuss the negotiations.
Representatives of the two automakers and the U.S. government continued talks late into the evening on Thursday, people familiar with the closed-door discussions said.
Both GM and Chrysler have been forced to idle plants and lay off thousands of workers across North America as they try to shore up cash and have warned they could face bankruptcy without federal assistance.
The aid package being spearheaded by the White House would demand that both automakers restructure by seeking new concessions from organized labor and creditors, two people briefed on the talks said.
GM and Chrysler have not commented on the aid talks with the Bush administration which have continued over the past week after an attempt to pass legislation to support the industry failed in the U.S. Senate.
In interviews on Thursday, U.S. President George W. Bush said he was concerned about the impact a "disorderly bankruptcy" might have on markets and the economy.
But Bush, who leaves office next month, also said the automakers would have to show they have workable plans to become competitive and profitable.
One remaining uncertainty is where an emergency federal bridge loan would leave Chrysler, widely considered the weakest of the U.S. automakers.
Chrysler Chief Executive Bob Nardelli said last month the privately held automaker needs both taxpayer-backed loans and an alliance with one or more automakers to survive.
More recently, Nardelli has said the automaker could restructure to emerge as a stand-alone competitor, but most analysts are skeptical of that prospect because of Chrysler's heavy reliance on the deeply depressed U.S. market and its inability to fund new vehicle development programs.
Cerberus Capital Management, the private equity firm that bought 80 percent of Chrysler from Daimler AG, has retained advisors to study a range of options for the No. 3 U.S. automaker, including selling off its most valuable assets, including its Jeep brand and its minivan line.
Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk that it would drive more consumers away from their brands.
The Detroit-based automakers have also said a bankruptcy filing by one could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.
Ford Motor Co is not seeking emergency loans but has asked the government to consider standby credits it could draw on if its own position worsens more than expected in 2009 or if Chrysler or GM were to fail.
Both GM and Chrysler have been hard hit by the sudden tightening of credit since September, a development that has made it harder for their dealers to carry inventory and for consumers to find financing.
GM's sales in the U.S. market dropped 41 percent in November and are down 22 percent this year with only December sales results remaining.
Chrysler sales have dropped 28 percent this year. From Friday, the No. 3 U.S. automaker will be shutting all 30 of its plants for at least a month in order to keep inventories of unsold vehicles from building further.
(Additional reporting by Jui Chakravorty in New York and John Crawley in Washington; Editing by Anshuman Daga)