GENERAL MOTORS is in emergency discussions with its lenders this weekend over a multi-billion dollar debt-for-equity deal that could save the iconic American car giant from a Chapter 11 bankruptcy filing.

GM’s chief executive Rick Wagoner is scrambling to secure a deal by Tuesday, when he will make a fresh attempt to secure up to $12 billion (£7.8 billion) in financial aid from the US government.

Wagoner is trying to persuade some of his debt-holders to swap part of the company’s $43 billion debt pile for shares, in a move that would shore up the balance sheet and reduce its crippling interest costs.

The company has been paying about $2.9 billion a year in interest payments, one of the key factors behind its troubled financial state.

Weak demand and restructuring costs have seen the company lose $13 billion in the first nine months of the year.

The new capital structure would form the basis of a new business plan for a much smaller, leaner business. If agreement can be reached this weekend the company could avoid seeking bankruptcy protection.

Analysts believe investors could agree to the plan as unsecured creditors are expected to suffer big losses if the company is forced into Chapter 11.

Wagoner has been vigorously opposed to a bankruptcy filing, a move which would be expected to cost him his job. Fritz Henderson, GM’s chief operating officer, is being tipped as his successor.

The GM board is expected to meet this weekend to assess whether there is sufficient interest in a debt-for-equity swap before filing the business plan with the US Congress on Tuesday.

America’s big three car firms – GM, Ford, and Chrysler – are looking for a combined aid package of some $25 billion. They are arguing for short-term loans to see them through to 2010. The appeals for cash will be assessed in hearings to be heard on Thursday and Friday.

GM had been in merger negotiations with Chrysler’s majority owner, Cerberus Capital Management, although these talks broke down this month.

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