A U.S. bankruptcy judge on Tuesday considered whether Chrysler LLC could move forward with its plans for a quick sale of most of its assets while rival General Motors Corp prepared to resume talks with its union and detailed a plan that could shift majority ownership control to the U.S. government.

Some of Chrysler's smaller lenders objected to the U.S. automaker's plan for a quick dash through bankruptcy, but they failed in their attempt to keep their identities secret.

Lawyers representing the group of investment firms and hedge funds who hold some $330 million of the $6.9 billion of debt said the plan would subvert time-honored bankruptcy principles and prevent the automaker's creditors from getting a fair return.

The U.S. automaker spent a third day in bankruptcy court in an effort to sell its best assets to a new company that would partner with Italy's Fiat SpA.

Chrysler's lender group complained in court papers that the company's sale procedures were designed to prevent, not encourage, competitive bidding.

Meanwhile, larger rival GM, which like Chrysler is surviving on government bailout money, faces its own June 1 restructuring deadline and is set to resume negotiations with the United Auto Workers union this week.

In an unusual filing with securities regulators, GM also detailed plans that would leave current shareholders with only a 1 percent stake if stock is transferred to the U.S. government, the United Auto Workers and bondholders in exchange for debt forgiveness as planned.

GM also warned that shareholders likely would be wiped out if the automaker failed to complete the restructuring and filed for bankruptcy.

GM Chief Executive Fritz Henderson said the deal the union made with Chrysler on payments due to a retiree healthcare fund was close to what GM was planning in restructuring its own debt.

The UAW is calling on the U.S. government to reject GM's latest restructuring plan, saying it would eliminate U.S. factory jobs and clear the way for increased imports from plants in Mexico, South Korea and China.

The objection by the union, which could own 39 percent of a restructured GM, underscores the problems that the No. 1 U.S. automaker faces in satisfying the demands of all of the parties with a stake in its effort to stay out of bankruptcy protection.

In Europe, Klaus Franz, a labor leader at GM's European Opel operations projected a loss of 10,000 jobs in Europe if the brand merged with Fiat. Fiat has talked about combining its auto business with those of GM Europe and Chrysler.

Franz told Reuters that Fiat Chief Executive Sergio Marchionne had said at a meeting on Monday he foresaw closing Opel's Kaiserslautern engine plant in Germany and other Fiat and Opel manufacturing sites in England and Italy.

But Marchionne said, in an interview with a German newspaper, that he would keep all German Opel plants open if Fiat took over Opel. Fiat declined to comment.

In an industry that has a poor track record for M&A execution, Fiat CEO Sergio Marchionne has his work cut out for him, said Morgan Stanley analyst Adam Jonas. But we believe the advances made toward Chrysler and Opel may help increase the chances of Fiat Auto's long term viability.

Canadian auto parts supplier Magna International Inc said it was interested in possibly buying a minority interest in Opel.

PENSKE INTERESTED IN GM'S SATURN

Number 2 U.S. dealership group, Penske Automotive Group said it was interested in acquiring GM's Saturn brand and distribution network.

Penske, which has 310 retail automotive franchises and is the exclusive U.S. distributor of Daimler AG's Smart cars in the United States, said it had not yet made a proposal to GM.

Separately, GM's former finance unit GMAC, which still provides loans to the buyers of the automaker's vehicles, said its first-quarter loss grew 15 percent, reflecting an increase in soured mortgage and auto loans as the economy weakens.

Despite posting its sixth loss in seven quarters, the lender said it would not be forced into bankruptcy if GM were unable to restructure itself.

In Germany, new car registrations increased 19.4 percent to nearly 380,000 units in April as motorists continued to cash in on government incentives to junk old cars and buy new ones.

That brought new car sales in the first four months of the year to the best level since the record year of 1999, even as demand plummets in other major markets.

In the United States, President Barack Obama and Democratic lawmakers reached agreement on a legislative proposal designed to stimulate U.S. auto sales, which have fallen to near 30-year lows.

The one-year plan, similar to the plan in Germany, would offer vouchers worth up to $4,500 for owners to replace their less fuel efficient vehicles for models that get better gasoline mileage.

(Additional reporting by Soyoung Kim, Kevin Krolicki in Detroit, Chelsea Emery in New York, John Crawley in Washington, D.C., Christiaan Hetzner in Frankfurt; Writing by Poornima Gupta, editing by Gerald E. McCormick, Carol Bishopric, Leslie Gevirtz)

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