Chrysler, the troubled US carmaker, today admitted that it would cut up to 5,000 jobs as it struggles to cope with falling demand for its vehicles from cash-strapped consumers.

The company is currently in talks with General Motors, which is also struggling amid a worsening global auto downturn. Those talks were said to have intensified yesterday. The core of a deal is likely to involve Chrysler owner Cerberus Capital Management taking a stake in the automaker and getting the remaining 49 per cent of GMAC, GM's former captive finance arm.

Chrysler and GM declined to comment on the discussions.

A spokesman at Chrysler said about the job cuts: "Twenty-five per cent of the combined white-collar and supplemental workforce will be eliminated."

He added: “It is likely that every facility Chrysler has around the world will be affected by these reductions."

US carmakers have been hard hit by falling sales as growing numbers of cautious lenders refuse to extend credit to consumers to buy new vehicles.

Henry Paulson, the US Treasury Secretary, has expressed concern about the state of Wall Street’s frozen credit markets, which have ceased to offer car loans.

Earlier estimates suggested that six million fewer new cars will have been sold in the US because of the banking crisis.

So severe is the crisis among Detroit’s big three car manufacturers — Ford, General Motors and Chrysler — that they have reversed their previous optimistic outlook for 2009. They now believe that next year could be just as bad as 2008

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