With a week remaining for Chrysler LLC to clinch a deal with Italy's Fiat, the U.S. automaker is readying a bankruptcy plan but still focused on reaching an alliance with the support of the Obama administration, people with knowledge of the discussions said on Thursday.

Fiat, meanwhile, also emerged as a potential buyer for General Motors Corp's Opel unit in a deal that would mark the Italian automaker's emergence as a major global player with a role in the restructuring of two of Detroit's sputtering carmakers.

Chrysler, which faces a government-imposed April 30 deadline to cement an alliance with Italy's Fiat or face a cut off of its federal funding that could trigger its liquidation in bankruptcy, has been preparing for a Chapter 11 filing as a contingency, a person with direct knowledge of the plans said.

A U.S. official said the focus for the autos task force headed by former investment banker Steve Rattner was for brokering a Chrysler-Fiat deal even as it prepared for the alternative.

"In a negotiation like this, everything is speculation until there's a deal," the official said.

"It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership."

Both people spoke on the condition they not be named because the talks involving Chrysler, Fiat, related unions and bank lenders are confidential and ongoing.

Chrysler said in a statement it would follow the task force's guidance and was keeping "all options open." It pledged work with stakeholders to "reach a successful conclusion" to its restructuring.

Earlier, the New York Times and The Wall Street Journal reported Chryslers' bankruptcy plans could include a filing as soon as next week that would allow Fiat to emerge with Chrysler's strongest assets.

One major sticking point has been attempts by the administration to get Chrysler's secured lenders to restructure some $7 billion in first-lien debt they now hold.

The sides have been exchanging proposals and the banks were expected to make another as soon as Friday, according to sources briefed on those talks.

U.S. Sen. Debbie Stabenow, a Michigan Democrat, urged lenders to reach a deal to save Chrysler.

"The clock is ticking for hundreds of thousands of current Chrysler employees, retirees, suppliers and dealers," Stabenow said in a letter to JPMorgan Chase & Co Morgan Stanley, Citigroup Inc, Goldman Sachs Group, Elliot Management, Stairway Capital Management, Perella Weinberg Partner and Oppenheimer Funds.

Separately, the head of the Canadian Auto Workers union said late on Thursday that he expected to have a cost-saving deal completed with Chrysler by Friday morning.

Canada is also considering providing financing to both Chrysler and GM if the companies end up filing for bankruptcy, Industry Minister Tony Clement said.

'NO REASON WHY THIS SHOULD NOT HAPPEN'

Fiat Chief Executive Sergio Marchionne said on Thursday it was premature to consider picking up Chrysler's assets in a bankruptcy proceeding.

"Based on what I know today, I see no reason why this should not happen and I can only confirm our unwavering commitment to get this transaction done," Marchionne told reporters after Fiat reported quarterly results.

GM, meanwhile, is facing a June 1 deadline to complete its restructuring, with the aid of up to $5 billion in new government bailout funds, or face likely bankruptcy.

In a move underscoring the continued pressure it faces, GM said on Thursday it would slash production over the next three months to cut its inventory of cars and trucks and avoid the risk of an "uncontrolled shutdown" from the financial crisis at bankrupt supplier Delphi Corp.

GM and Chrysler have both been hit by unplanned production shutdowns in the past several years due to problems at suppliers. GM said it wanted to avoid something similar if its negotiations with Delphi's lenders failed to produce a deal for its former subsidiary to emerge from bankruptcy.

"We believe that continuity of supply to GM will be best assured by resolving the issues that will allow Delphi to emerge successfully from Chapter 11," Delphi spokesman Lindsey Williams said in a statement.

GM's sweeping production shutdown represents one of the deepest cutbacks by any of the major U.S. automakers during a four-year downturn that has driven the industry to the brink of collapse with sales near 30-year lows.

Analysts said GM's move would add to the financial stress on its key suppliers. Shares in key suppliers tumbled in response.

American Axle & Manufacturing Holdings Inc, which relies on GM for three quarters of its sales, closed down 21% on the New York Stock Exchange.