Canadian car parts maker Magna is still Germany’s preferred partner to take a majority stake in GM Europe, Chancellor Angela Merkel has said, setting the stage for a showdown with General Motors over the takeover bids.

Officials from the German government and GM discussed the three offers for the loss-making European subsidiary that builds Opel and Vauxhall vehicles.

The three offers were submitted on Monday, and German and GM failed to agree on which they liked best.

GM has received offers from a consortium of Canadian supplier Magna and Russia’s Sberbank, from private equity company RHJ International, and a third from China’s Beijing Automotive (BAIC).

GM has to agree a choice with Germany, which is providing loan guarantees to the buyer and the subject is likely to be an issue in the campaign for Germany’s election on September 27.

“We have made clear that we view the Magna plan as sustainable in all respects,” Ms Merkel said at a company visit in northern Germany, adding the talks between GM and German officials would need longer.

German officials informed GM representatives of their preference for Magna, said Jochen Homann, head of the German government’s Opel Taskforce after the four-hour Berlin meeting.

“GM was very guarded about this,” he said, adding all the bids had several questions to be cleared up. Sources close to the talks said the officials had had a frank exchange of views.

GM likes the offer from RHJ, a Belgium-based financial investor that aims to shrink production to return Opel to profit and may be open to selling it back to GM at a later date.

Mr Homann said further talks would take place once issues had been cleared up. He said all potential investors were offering a modest sum in terms of their own capital and that GM had to give way on some issues, such as on licence fees.

Eventually, the two sides, along with other European governments with Opel/Vauxhall plants, must agree on a partner. Both are represented on the Opel Trust, which has been responsible for Opel since GM entered bankruptcy in June.

The trust holds 65 per cent of Opel shares and must approve the investor. GM holds 35 per cent of Opel shares, while the German government is being asked to provide loan guarantees worth up to 4.5 billion euros (US$6.4 billion).

Magna wants to expand Opel’s full-scale car assembly business and forecasts high growth rates, particularly in Russia, home of its consortium partner Sberbank.

Several people familiar with the matter told Reuters Newsagency that the German states that are home to Opel factories also still prefer Magna’s offer.

The state premiers, like Ms Merkel are fearful of the prospect of mass layoffs among Opel’s roughly 25,000 workers in Germany before September’s election.

Mr Homann said the Chinese carmaker was still in the race for Opel but lagging behind.

In Britain, Business Secretary Peter Mandelson met Vauxhall management and unions. British authorities want to protect UK production and the company’s its 5500 strong workforce.

GM Europe is to hold talks with the UK government later this week