Auto parts shares jump as GM, Chrysler launch aid

General Motors Corp and Chrysler launched government-backed assistance programs for parts suppliers on Wednesday, and the task force overseeing the carmakers' restructuring was expected to meet with GM this week to speed up the process.

The government will give $2 billion to GM to support suppliers, and Chrysler will receive $1.5 billion to maintain its supply base.

GM, Chrysler and the suppliers are required to kick in capital to participate in the program.

On March 20, the Obama administration pledged up to $5 billion to help auto suppliers, which are crucial to the survival of U.S. automakers.

A steep drop in North American auto production has put suppliers under intense pressure and created the possibility of failures. Failure of even a small auto parts supplier could shutdown production at many automakers.

GM is also trying to keep itself in business. A source familiar with the company's plans said on Tuesday that GM was in intense preparations for a possible bankruptcy filing that could split GM into a new company comprised of its most successful units and an old company of unprofitable units.

Susan Docherty, vice president of Buick, Pontiac, GMC for GM, said on Wednesday the automaker needed to restructure without a bankruptcy or with a bankruptcy.

GM is operating under $13.4 billion of government loans. To avert bankruptcy, it must reach deals with bondholders to cut unsecured debt and the United Auto Workers union to alter funding of a union retiree healthcare trust.

GM and Chrysler executives at the New York Auto Show said they preferred to restructure outside of court, but were prepared to seek bankruptcy protection if necessary.

The White House said its auto task force would meet with GM in Detroit this week and next to accelerate the process laid out by President Barack Obama at the end of March.

Obama rejected GM's turnaround plans, asked for the resignation of GM's Chief Executive Rick Wagoner and told the automaker it would have to dig deeper and move faster on its restructuring. He also rejected Chrysler's turnaround plan.

Chrysler, owned by Cerberus Capital Management LP, was given until April 30 to complete an alliance with Italian automaker Fiat or face possible bankruptcy.

Chrysler Vice Chairman Jim Press said the automaker was working around the clock to complete the Fiat alliance and that he was confident an agreement could be reached by the end of April.

RADIATING PAIN

Turnarounds for U.S. automakers depend partly on a rebound in auto sales, something other governments have tried to accomplish in their countries through incentive programs such as subsidies for scrapping old cars.

The German government has extended a scrap program that has helped drive sales higher, increasing funding to 5 billion euros ($6.60 billion), an official familiar with the decision told Reuters.

Toyota Motor Sales USA President Jim Lentz said a program similar to the one in Germany could increase sales in the United States, the world's most lucrative market.

He said that Toyota expects U.S. auto sales to be about the same or slightly better in the second quarter of 2009 than in the first under a scenario that sees a recovery until 2010.

Daimler AG warned on Wednesday that it expected a considerable drop in revenue in all of its automotive businesses this year and pushed expectations for a potential industry turnaround to the second half.

And in Russia, industry data showed a deepening decline in demand for new cars, with sales plunging 47 percent in March year on year, compared with a 38 percent decline in February.

Independent contract carmaker Karmann filed for insolvency on Wednesday, becoming the biggest German auto company to file so far in the industry crisis.

In Asia, South Korea's cash-strapped sport utility vehicle maker Ssangyong Motor announced plans to reduce its workforce and sell idle assets.

But China vehicle sales for March could hit a record high, the official Shanghai Securities News said on Wednesday.

($1=.7582 Euro)

(Reporting by David Bailey, Soyoung Kim, Christiaan Hetzner, Chelsea Emery, Jan Strupczewski, Matthias Sobolewski, Nguyen Nhat Lam, Gernot Heller, Fang Yan, Cheon Jong-woo, Poornima Gupta, David Lawder and Claudia Parsons; Writing by Helen Massy-Beresford; Editing by Marcel Michelson, Jon Loades-Carter, Toni Reinhold)