President Barack Obama offered a fervent hope for Chrysler and General Motors Corp's survival on Tuesday as GM bondholders said completing the automaker's restructuring outside bankruptcy has become increasingly less likely.

Obama said it was the administration's hope that in the coming weeks Chrysler would find a viable business partner and GM would develop a stronger business plan, and GM shares rose more than 6 percent.

It is our fervent hope that in the coming weeks, Chrysler will find a viable business partner and that GM will develop a business plan that will put it on a path to profitability without endless support from the American taxpayer, he said.

The U.S. auto task force formed to oversee the retooling of GM and Chrysler, both operating under emergency government loans, gave GM 60 days of funding from the end of March to cut deeper and faster to receive additional support.

GM must reach agreements with bondholders to reduce about $28 billion of unsecured debt sharply and with the United Auto Workers to cut labor costs and restructure funding for a healthcare trust for union retirees.

Sources familiar with the situation told Reuters last week that GM was in intense and earnest preparations for a possible bankruptcy filing.

The prospect of GM avoiding bankruptcy is becoming less likely, which may be starting to cause bondholders to pursue separate bankruptcy strategies, two sources close to government talks said on Tuesday.

Chrysler must reach a definitive agreement on an alliance with Italy's Fiat SpA and deals to cut secured debt, labor costs and rework the funding of a healthcare trust for union retirees to receive more support, the task force said.

Without additional government support, Chrysler faces likely liquidation.

Chrysler has about $7 billion of secured first-lien loans from Cerberus Capital Management's acquisition of the automaker in 2007. Those lenders have thus far refused task force efforts to eliminate most if not all of the debt.

The first-lien creditors want to avoid liquidation of Chrysler and are likely to ask for equity and cash to restructure the loans, according to sources familiar with the discussions.

The first lien creditors are expected to make that proposal to the U.S. government within days, according to the sources.


Major battery suppliers including the Johnson Controls Inc and Saft partnership, A123 Systems and LG Chem Ltd <051910.KS>, detailed plans on Tuesday to invest millions in advanced battery plants in Michigan.

Developing advanced battery technology for hybrid, plug-in electric and electric vehicles has been seen as crucial for any turnaround of the U.S. auto industry.

The partnership between JCI and France's Saft plans a plant with about 500 workers to produce lithium-ion batteries for about 150,000 hybrid and electric vehicles per year.

Michigan offered the companies tax credits to lure the operations to the state, home to GM, Chrysler and Ford Motor Co and hard hit by the financial struggles of those automakers.

In Asia, incentives appeared to boost car sales in China as Germany's Volkswagen said sales in mainland China and Hong Kong rose 9 percent in March, setting an all-time monthly record.

Automakers have offered a record level of incentives in the United States to prop up sagging sales, and offers of incentives to turn in older cars have supported sales in Germany.

The short-term success of the scrappage program in Germany has been studied in the UK as well and for possible adoption in the United States, where monthly sales have fallen to the lowest rates since the early 1980s.

($1=.7574 Euro)

(Reporting by Jui Chakravorty Das, Walden Siew, Kevin Krolicki, Soyoung Kim, Eva Kuehnen, Maria Sheahan, Stanley Carvalho, Fang Yan, Jacqueline Wong, Anupreeta Das and John Bowker; Writing by Helen Massy-Beresford and David Bailey; editing by Simon Jessop and Matthew Lewis)