GM and Chrysler clear major deal issues: sources

By Jui Chakravorty Das and Kevin Krolicki

NEW YORK/DETROIT (Reuters) - General Motors Corp and Cerberus Capital Management have resolved the major issues in a proposed GM-Chrysler merger, but the final form of any deal would depend on the financing and government support available, sources familiar with the talks said on Wednesday.

Both sides have agreed that GM Chief Executive Rick Wagoner would lead the combined automaker, the sources said.

A merged GM-Chrysler would be the largest automaker by global sales, but analysts have cautioned it would struggle to turn around the overlapping Detroit-based operations of two companies that have seen mounting losses tied to a global downturn in sales.

GM shares jumped by as much as 11 percent, its bonds rose, and the cost to insure the automaker's debt against default fell.

The sources did not specify on Wednesday what the major issues were. Talks between GM and Cerberus have covered a range of questions, including the stake the private equity firm will retain in the merged automaker, ownership of affiliated finance company, GMAC, and which of Chrysler's assets GM would maintain, other sources familiar with the talks have said.

GM has been in talks with Cerberus about buying Chrysler since last month, but the biggest hurdle has been the difficulty in securing investment or financing, sources have said.

A decision by the Bush administration to provide the government's first funding for the auto sector since the $1.5 billion bailout of Chrysler in 1980 has been widely seen as the merger's best chance for success.

GM and Cerberus declined comment. A United Auto Workers union spokesman had no immediate comment.