General Motors in Crisis Talks to Cut 35,000 Jobs

General Motors is trying to stave off the possibility of collapse by thrashing out a last-minute job reduction plan with its former subsidiary and now major parts supplier, Delphi, and the powerful United Auto Workers union.

The plan on the table is believed to involve offering up to 35,000 employees in both companies cash incentives of up to $35,000 (£20,000) to take early retirement.

Delphi went bankrupt last autumn as it lost out to nimbler rivals, especially from overseas. But GM, which employs 325,000 people worldwide and demerged Delphi in 1999, guaranteed worker's pensions and benefits. GM, which yesterday said talks were continuing, has estimated it could be landed with a bill for $12bn if it failed to reach a settlement.

Delphi's management want to slash wages and reduce headcount from 33,000 to about 10,000 to try to get the business back on its feet. GM, which is already planning to shed 30,000 US employees and freeze pension benefits, wants to cut its "jobs bank", a pool of employees laid off on full pay whom it can call on to return.

If a deal with unions cannot be reached by Friday next week Delphi's board has said it would ask the federal bankruptcy court to annul its staff contracts, a move unions have warned would lead to an all-out strike.

The problems at Delphi have raised fears that GM, the world's largest car manufacturer, could go bust. Ron Tadross, the Banc of America analyst who caused a stir at the time of Delphi's collapse when he said there was a 30% chance GM would also be brought down, now believes this is "more likely than not".

The talks come as GM, already under investigation by the Wall Street regulator for accounting irregularities, has become embroiled in another accounting scandal. Late last week it admitted it would have to restate accounts for the past six years and its 2005 loss would be about $10.6bn, $2bn more than it had predicted.