Four bidders are in the running to take over GM Europe
General Motors' battle to avoid bankruptcy has suffered a major blow as bondholders have rejected a key part of the carmaker's restructuring plan.
The board will now meet to discuss its "next steps" after a large number of investors refused to exchange their debt for company shares.
Meanwhile, the German government is due to meet to discuss bids for GM's Europe arm, hoping to secure its future.
Four bidders are in the running for its Opel and Vauxhall operations.
German Chancellor Angela Merkel is set to meet GM representatives and US government officials at 2000 BST on Wednesday night.
Indeed, GM transferred control on Wednesday of its European factories and patents, excluding its Saab operations, to Opel in order to ease the takeover.
The move also helps to protect Opel from any potential GM bankruptcy.
"Legally it would ring-fence and isolate the assets from any potential developments," said Karin Kirchner, spokesperson for GM Europe.
Although the ultimate decision rests with GM in Detroit, Germany's preference is crucial as the government is being asked to put up hefty loan guarantees for the winning bidder for GM Europe.
GM has been trying to do a deal with bondholders, under which they would trade $27bn in debt for a 10% stake in the recapitalised company.
WHAT IS A BONDHOLDER?
Bondholders own bonds, which are, in effect, IOUs issued by companies. The bondholder, or investor, gives the company a sum of money, which the company then agrees to repay at a certain date, and pay a rate of interest in the meantime. Unlike shareholders, bondholders do not own a stake in the company. They do, however, have a greater claim to the company's income in the case of financial distress
The failure of the offer is a big setback for the US car giant, which wants to avoid seeking bankruptcy protection ahead of a US-government imposed 1 June deadline.
GM spokesperson Julie Gibson said she was not aware of any plans to revisit the deal with bondholders.
"I don't think that is on the cards," she said.
The failure to do a deal "was a disappointment, but not a surprise," she added.
"There were a large number of vocal bondholders who were unhappy with the deal."
Indeed the majority of bondholders had been against the deal from the start, believing that the stake being offered was too small.
The other key part of the restructuring, an agreement with unions, had been more successful. The powerful United Auto Workers union agreed to take a 20% stake in GM, down from the 39% in the original plan.
Ms Gibson said it was too late in the day to use the equity freed up by this agreement to sweeten the bondholder deal.
The GM board will meet "later this week" to discuss its next move.
In light of the failure of the deal with bondholders and the very real possibility that GM will seek bankruptcy protection next week, time is of the essence for a deal on GM Europe.
But German Economy Minister Karl-Theodor zu Guttenberg told Reuters news agency that two of the bidders - Italian carmaker Fiat and Canadian-Austrian car parts group Magna - would have to improve their offers significantly.
THE FOUR GM EUROPE BIDS
Fiat, Italian carmaker - 10,000 job cuts in Europe; could close one of four Opel factories in Germany
Magna, Canadian-Austrian car parts group - 2,500 job cuts in Germany; plans to inject between 500m and 700m euros into Opel; 10% of the new company would be owned by Opel employees; GM would keep a 35% stake in the company; bid in connection with Russia's state-run Sperbank and Oleg Deripaska's truck firm Gaz
RHJ International, private equity firm based in Brussels - reports suggest it would also give employees a 10% equity stake in the company
Beijing Automotive Industry Corporation, car producer - China's fifth-largest car producer is a late entrant to the bidding
The German government had been expected to name its preferred bidder after a series of meetings which are predicted to stretch late into the night on Wednesday.
But a government spokesperson suggested it was "much more probable that talks will be continued with at least two investors after today's meeting".
Opel has its headquarters in Germany, and 25,000 of the firm's 50,000 workers are employed in the country.
The four bidders for GM Europe are Italy's Fiat, Canada's Magna, Belgium's RHJ and China's Beijing Automotive Industry Corporation (BAIC).
With an election looming, Berlin does not want to see too many job losses arising from the takeover.
Magna says it will lay off 2,500 workers in Germany, while Fiat says it will cut 10,000 jobs across Europe, including 2,000 in Germany.
BAIC, however, says it will not cut any jobs for at least two years. The German government is considering the bid from the Chinese carmaker, a spokesperson said, although it would not be present at Wednesday's meetings.
While the German government has been closely involved in talks, there have been fears in other European nations over what any deal means for local workers.
Mandelson: 'Bidders have commitment to Vauxhall production in the UK'
UK Business Secretary Lord Mandelson told the BBC it was too early to judge what would happen regarding job cuts.
But he said he had received reassurance from all three main bidders over the safety of UK jobs, where 5,000 people are employed: 1,200 at the Luton van plant and 2,000 at Ellesmere Port making Astras.
However, he said longer term there had to be consolidation of production, and restructuring of the firm in Europe.
"It has excess capacity, its costs are too high and we're not going to see demand for cars restored to their previous high levels for many years to come."
Unite's Tony Woodley: 'I'm demanding Lord Mandleson travels to Germany and gets involved in negotiations'
Derek Simpson, general secretary of the Unite union in the UK, fears the German government will support a bid which offers no protection to British workers.
Tony Woodley, joint general secretary of the Unite union, said Lord Mandelson was not doing enough for UK Vauxhall workers.
Meanwhile, the heads of the Belgian and Flemish regional governments want Germany and the European Commission to engage other nations where the cars are made in talks over GM Europe's future.
About 2,700 workers are employed at Opel's Antwerp plant and there are worries over jobs there, the Associated Press news agency reports.
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