General Motors Corp moved closer to filing the largest bankruptcy ever for a U.S. industrial company after a crucial bond exchange proposal failed, while the fate of GM's European brand Opel remained uncertain after marathon talks with German officials ended without a deal.

At the same time, bankrupt U.S. automaker Chrysler faced a key court hearing expected to clear the way for Fiat SpA to take control of its best assets on the fast-track schedule set by President Barack Obama's administration.

Less than a month after it filed Chapter 11, Chrysler is seeking approval to sell its stronger operations to a New Chrysler owned by Fiat, labor unions and the U.S. and Canadian governments, in exchange for $2 billion paid to lenders.

The court hearing into the Chrysler sale is set to continue Thursday in New York.

With the Chrysler case nearing conclusion, attention was shifting to the complications expected from GM's bankruptcy -- expected within the next few days -- and the sale of Opel.

Fiat is also in the race to win control of Opel, part of Chief Executive Sergio Marchionne's ambitious attempt to build an automotive alliance that could rank as the world's second-largest by sales behind Japan's Toyota Motor Corp.

The bidding battle for Opel had narrowed to a two-way race between Fiat and Canadian auto parts company Magna International Inc, German ministers said after more than 12 hours of talks stretching well into Thursday morning.

Belgium-listed holding RHJ International SA and China's Beijing Automotive Industry Corp had also submitted bids.

But ministers said they had been unable to reach a deal to provide Opel with temporary financing if GM files for bankruptcy in the United States.

We have made demands on the U.S. Treasury and expect answers by Friday and we will need these answers in order to agree a plan, Economy Minister Karl-Theodor zu Guttenberg said. We don't have the security yet that we need to commit to bridge financing today.

Finance Minister Peer Steinbrueck spoke of surprises and disappointment with the U.S. negotiators, saying GM had shocked participants by announcing it needed 300 million euros ($415 million) more in short-term cash.


Selling off its Opel business was identified as a major priority by GM as it neared the end of this month. The bond exchange was another.

GM said in a statement that an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company by a midnight deadline had fallen far short of the target set in consultation with the Obama administration.

GM said in a release that substantially less than the 90 percent threshold had been tendered and none of the exchange offers would be accepted.

The exchange had been seen as GM's last hope to cut debt outside the kind of bankruptcy that has been under way for Chrysler since the end of April.

GM's board was expected to meet this week to consider the dwindling options available after the bond swap failed.

Even with a ... favorable reaction from the bondholders, they were going to end up in bankruptcy, said George Magliano, forecasting director at auto industry tracking firm IHS Global Insight.

The fact that the bondholders did not take the deal makes the bankruptcy that much more difficult. That leaves one more big piece that the bankruptcy judge has to decide.

GM has been kept in operation since the start of the year with $19.4 billion in emergency federal loans as a plunge in sales overran progress it made in cost-cutting over the past four years.

About 90,000 of GM's U.S. employees were paid three days early this week, an effort to reassure them that wages would not be affected by any bankruptcy filing, a GM spokesman said.

The company also aimed to continue production during any bankruptcy, purchasing chief Bob Andersson said, and was aiming to reduce the number of its parts suppliers to about 1,100 from 1,500 over the next year and a half.

GM burned more than $10 billion in the first quarter and has lost $88 billion since 2005 as auto sales began to slow in its home market. Its financial problems deepened when the credit crisis of late 2008 shut down vehicle financing.

Under its pending restructuring, GM will be majority-owned by the U.S. government, an effective nationalization intended to save jobs and prevent a more costly liquidation.

But Maryann Keller, an independent industry analyst, said action by the Obama administration, coupled with similar support for Opel in Europe, would prevent the global auto industry from undergoing a much needed shakeout of capacity.

The major problem in this is that because of the action of government we're not going to see the strong survive and the weak dying, she said.

GM shares, which could be worthless if the automaker files for bankruptcy, fell 29 cents, or 20 percent, to $1.15 on Wednesday. The shares have traded in a 52-week range of $18.18 to $1.00.

In 2000, shortly after former CEO Rick Wagoner took over, GM shares peaked at $75. At that time, the automaker employed more than 146,000 factory workers.

Under a concessionary UAW contract workers are voting on through Thursday, GM's factory payroll could drop to near 33,000 workers.