Auto parts maker Magna International took pole position in the battle for General Motors' German unit, Opel, after reaching what sources said was a preliminary deal with GM.
A top-level government meeting was delayed by ongoing talks between GM and Canadian-Austrian parts supplier Magna, a German government spokesman said.
Germany was racing to overcome a transatlantic spat and clinch a deal for Opel on Friday as parent General Motors hurtled toward bankruptcy.
As the clock ticked down to a June 1 restructuring deadline for General Motors, widely expected to lead to a bankruptcy filing for the U.S. automaker, GM's Saab unit -- whose future also hangs in the balance -- was granted more time to restructure by a Swedish court.
In Germany, efforts to forge a rescue for GM's European unit continued despite tensions.
Magna appeared to have overcome earlier frustration with new demands from GM to secure a preliminary deal, sources said.
The sources said Magna and GM still had to work out details before an expected meeting later on Friday with German Chancellor Angela Merkel.
Fiat Chief Executive Sergio Marchionne, a rival bidder for Opel who earlier insisted his company would not take extravagant risks for Opel, said life would go on if Magna managed to buy Opel. Fiat would continue to seek a Saab deal, and Chrysler was its main focus, he said, adding that he was not interested in a partnership with Magna.
The bidders faced a 1200 GMT, Friday deadline to submit preliminary contracts setting out plans for bridge financing and a temporary trustee scheme to protect Opel's assets. A first round of talks earlier this week between the German and U.S. governments, the bidders and GM collapsed amid mutual recriminations.
MORE CANNOT BE ASKED
Fiat's Marchionne spoke out on Friday morning in a move one analyst said was the first step in Fiat pulling out of the running.
Marchionne said he was still interested in Ruesselsheim-based Opel, which employs 25,000 staff in Germany but more cannot be asked.
Marchionne is juggling a deal to buy assets of U.S. automaker Chrysler -- expected to close as early as Friday -- with a bid for Opel as part of his ambitious plan to create a European auto giant.
Marchionne said the emergency nature of the situation cannot put Fiat in a position to take extravagant risks. Marchionne said it was unreasonable to expect Fiat to provide funds to a group whose finances remain unknown.
The Agnelli family, which controls Fiat, totally supports Marchionne's plans and would continue to do so even if a capital increase were needed to fund them, the chairman of the family holding company said on Friday.
Elsewhere, French carmaker Renault and its Japanese partner, Nissan Motor Co, pledged to squeeze out more cost savings from their partnership as the automotive industry worldwide battled a deep crisis.
In Sweden, loss-making Saab, which first sought protection from its creditors in February, was granted an extension until August 20 to line up a new owner and restructure its business.
Swedish business daily Dagens Industri reported late on Thursday that the two front-runners to buy Saab were Swedish luxury carmaker Koenigsegg and U.S. financier Ira Rennert and his Renco Group, with Italy's Fiat in third place.
Saab and GM are due to name a preferred candidate among three remaining unnamed bidders in the coming weeks.
In Britain, a newly launched car scrappage scheme boosted sales by 35,000 units in two weeks, the government said. The scheme let motorists trade in cars more than 10 years old for a 2,000 pound subsidy against a new model.
And world No. 2 truckmaker Volvo said it would withdraw redundancy notices for 600 workers in Sweden after striking a deal on work hours and pay with unions.
India's Tata meanwhile, which bought the Jaguar and Land Rover brands from Ford for $2.3 billion last year, reported a smaller-than-expected 50.7 percent drop in full-year net profit
(Reporting by Ian Simpson, Noah Barkin, Madeline Chambers, Christiaan Hetzner, Angelika Gruber, Victoria Klesty, Dave Graham, Madeline Chambers, Philipp Halstrick, John McCrank and Alberto Sisto; writing by Helen Massy-Beresford; Editing by Marcel Michelson and David Cowell)