GENERAL Motors has had talks with smaller rival Chrysler about a merger that would combine the No. 1 and No. 3 American auto makers, according to sources.

Both companies are struggling to cut costs and shore up cash.

Barron's reported that GM was preparing to approach the US Federal Reserve about borrowing money from the central bank's discount window because of the logjam in credit markets that has shut it out of other kinds of borrowing.

The moves come as all three Detroit-based auto makers are struggling with a plunge in US sales to 15-year lows.

They are facing tough questions from investors and creditors about whether they have the cash to ride out a deepening downturn.

Representatives of Cerberus Capital Management, the private equity firm that owns an 80.1-percent stake in Chrysler, were not immediately available for comment on merger talks.

Chrysler and GM also declined comment.

Cerberus is also in exploratory talks with other parties, including Renault-Nissan, to sell Chrysler, the source said.

But any deal would hinge on the completion of the sale of Daimler AG's remaining 19.9-percent stake in Chrysler to Cerberus, the source said.

Cerberus last month said it had approached Daimler to buy that remaining stake.

Chrysler's private owners and GM have had 'very early' talks about a merger, the source said.

The talks between GM and Cerberus began more than a month ago and are not certain to produce a deal.

GM shares fell as low as US$4 early on Friday, the lowest price for the stock since 1949. They recovered and ended up 13 cents, or 2.7 percent higher, at US$4.89 on the New York Stock Exchange.