German Finance Minister Peer Steinbrueck said on Saturday that Canadian auto parts maker Magna was Berlin's preferred bidder for General Motors' Opel unit.
After lengthy talks in Berlin between German politicians, US government officials and executives from GM and Magna, Mr Steinbrueck said an agreement had been reached.
The German government is expected to provide an immediate loan facility of 1.5 billion euros ($US2.1 billion). Magna is backed by a Russian bank and truckmaker.
Other bids were made by Fiat of Italy and Brussels-based RHJ International.
Magna International was founded by an Austrian immigrant, Frank Stronach, 76, in Canada 50 years ago.
He left school at age 14 to apprentice as a tool-maker, then emigrated to Canada in 1954.
Magna assembles vehicles under contract for Saab, BMW, Mercedes-Benz and Chrysler.
Based in Aurora, Ontario, north of Toronto, Magna is one of the world's largest manufacturers of automotive parts. It employs 70,000 people in 326 plants and research offices in 25 countries.
US deadline for GM
General Motors is under a deadline of Monday to seek bankruptcy protection in the United States for restructuring.
GM said late on Friday that president and chief executive Fritz Henderson will hold a media briefing on Monday.
Opel has been under GM's control for the past 80 years. However, its roots in Germany extend back to the 19th century.
Magna has said it will inject between 500 million - 700 million euros into Opel, assuming the deal gains government approval.
It also plans to cut 2500 jobs in Germany, about 10% of Opel's workforce in that country. Fiat had said it would cut 10,000 jobs.
Under the agreement with Magna, GM would keep a 35% stake in the company, while 10% would be owned by Opel employees.
The deal is expected to include Vauxhall in Britain also.
Meanwhile, Chrysler is close to obtaining court approval for its sale to a group led by Fiat SpA of Italy.
Chrysler wants to sell most of its assets to a New company owned by Fiat, labor unions and the US and Canadian governments, in exchange for $US2 billion paid to its lenders.
In Sweden, Saab, which first sought protection from its creditors in February, has been granted an extension until 29 August to find a new owner and restructure its business.
Swedish business daily Dagens Industri reported late on Thursday that the two front-runners were Swedish luxury carmaker Koenigsegg and US financier Ira Rennert and his Renco Group. Fiat was in third place.