General Motors is understood to have reopened merger talks with Chrysler as it emerged that Chrysler said it would halt all American vehicle production for at least a month.

Cerberus, the private equity firm, which owns around 20 per cent of Chrysler, has indicated that it is prepared to dump part of that stake in order to reduce its exposure to the carmaker.

News of the renewed car talks came as Chrysler said that it would halt all American vehicle production for at least a month.

The closure of all Chrysler’s 30 US factories provides the latest evidence that the US car industry has ground to a halt as America plunges into a deep recession.

Chrysler said that all production would halt from the end of this week for one month as it sought to slash capacity in line with collapsing demand for new vehicles. Under the terms of the temporary production cuts, workers are forced to supplement reduced pay with unemployment benefits.

While General Motors and Chrysler were in merger talks earlier this year, they collapsed as demand for cars dropped and business dwindled.

Ron Gettelfinger, the president of the United Auto Workers union in the US, said: “This shows the stress facing the industry and that the US Government must step in as quickly as possible.”

The White House is scouring the books of General Motors and Chrysler and trying to find a way of providing them with emergency capital by allowing them to access the $700 billion bailout fund earmarked to rescue Wall Street.

It is widely expected that Barack Obama, who takes office on January 20, will introduce a formal, federally funded bailout when he becomes President.

In the UK, Lord Mandelson, the Business Secretary, gave warning last night that Jaguar Land Rover was “under particular strain” from the economic downturn and told Sky News he was talking to all UK carmakers, many of which have announced job or production cuts in the past few months as the global economic situation takes its toll of car sales.

“We are analysing very carefully what is going on in the sector and we will make good judgments in good time if it is appropriate for the Government to take any action or if it is possible for us to do so,” he said.

Jaguar Land Rover, which is owned by Tata, the giant Indian conglomerate, said last month that it would dismiss 850 IT and engineering staff in the West Midlands by the end of the year in response to severe global car market conditions. The group employs about 15,000 people in the UK.

Lord Mandelson said: “If we judge that it is not just short-term difficulties but longer-term pressures that are operating in that sector, or in relation to that particular company, then we will consider what measure, what intervention we can appropriately make. But the time for that decision has not been reached.”

He emphasised that Tata had the first responsibility to ensure the survival of Jaguar Land Rover and said that the Government did not have an open chequebook to bail out ailing private companies.

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