The shutdown comes as General Motors Corp. said a report that it and Chrysler have restarted talks to combine the two ailing automakers is untrue.
The Wall Street Journal, citing people familiar with the discussions, said Thursday that talks about a combination have been rekindled after Cerberus Capital Management LP, the majority owner of Chrysler LLC, signaled it is willing to part with some of its stake in the automaker.
GM spokesman Tony Cervone said Thursday the auto maker's stance on the merger talks has not changed since it suspended them when it announced third-quarter earnings in November.
GM and Chrysler had been in talks earlier this year to combine, but financing emerged as one of the biggest obstacles.
Chrysler, GM and Ford Motor Co. have been taking dramatic steps as they struggle to survive the recession and U.S. sales have dipped to their slowest rate in 26 years. Chrysler and GM fear they might not have enough money to pay their bills in a matter of weeks.
Attempting to cut costs, GM was halting construction of a plant tied to one of its most important projects, the Volt. Ford also said it will shut down 10 plants for an extra week in January because of sluggish sales.
Chrysler said Wednesday it would extend the normal two-week holiday shutdown that begins Friday to at least Jan. 19 at all 30 of its factories due to slumping sales.
The lack of consumer credit is hampering sales and forcing the production cuts, Chrysler said in a statement. Chrysler, Jeep and Dodge dealers say they have willing buyers for vehicles, but they can't close the deals, Chrysler said.
The news of the shutdown was another blow to the company's employees already nervous about their future in the industry.
"I haven't even bought any Christmas presents yet because I don't know what's going to happen next," said Jerry Fogarty, a 48-year-old married father of three who lives in the Detroit suburb of Wyandotte. He has worked at the Chrysler Trenton engine plant for nearly 16 years.
Fogarty said even though state unemployment and supplemental unemployment benefits will maintain much of his weekly income during the shutdown, it's little consolation if the company that once gave employees profit sharing checks soon goes out of business.
"I don't want to be laid off," Fogarty said. "I want to go to work tomorrow. ... We all want to work. That's all we want to do. It's scary, man. It's really scary."
The Bush administration is mulling ways to help the automakers after Congress failed to reach a deal on $14 billion in loans for GM and Chrysler. Ford has applied for a $9 billion line of credit but says it has enough cash to make it through 2009.
Funding for the loans is expected to come from the $700 billion Wall Street rescue fund, but many Republicans have objected.
"It's clear that the automakers are in a very fragile financial condition and they're taking steps to deal with it," White house press secretary Dana Perino said in a statement. "We're aware of their financial situation and are considering possible policy options to provide assistance in an appropriate way."
House Democrats have encouraged Treasury Secretary Henry Paulson to adopt accountability provisions included in a House-passed auto bailout bill - the product of a deal with the White House - as a condition to get the loans.
The measure would have given a Bush-appointed "car czar" oversight over any major business decisions by the automakers.
The Bush administration has signaled that concessions would likely be required of stakeholders in the deal - auto companies, the United Auto Workers union, bondholders and others.
Chrysler spokesman Dave Elshoff said four plants will be temporarily closed beyond Jan. 19: two plants in Toledo, Ohio, and one each in Ontario and Detroit.
Toledo North, which makes the Dodge Nitro and Jeep Liberty, and Toledo Supplier Park, which makes the Jeep Wrangler, will be closed until Jan. 26. The Windsor, Ontario, plant, which makes minivans, and Detroit's Conner Avenue plant, which makes the Dodge Viper roadster, will be closed until Feb. 2, Elshoff said.
Chrysler sales were off 47 percent last month and are down 28 percent through the first 11 months of the year.
At Ford, a company spokeswoman said Wednesday it will shut down 10 of its North American assembly plants for an extra week in January, also due to lower U.S. sales.
Spokeswoman Angie Kozleski says the normal two-week holiday shutdown will be extended to Jan. 12 at all operating assembly plants except those in Claycomo, Mo., near Kansas City, and the Dearborn, Mich., truck plant.
Ford will also extend the shutdown at some engine, transmission and parts stamping plants, or temporarily shut portions of them to match cuts at the assembly plants, she said.
The extra week of down time has been planned for several months as part of the company's first-quarter production schedule, Kozleski said.
Ford's U.S. sales were down 31 percent in November and are off 20 percent through the first 11 months of the year.
Laid-off workers at Ford and Chrysler get vacation pay for the normal holiday shutdown, then will receive unemployment benefits and supplemental pay from the company that total about 85 percent of their normal pay.
GM said last week it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production. Many of those plants will be shut down for the entire month of January.
GM said Wednesday it was delaying construction of a new engine factory in Flint, Mich., in an effort to conserve cash. The plant is to make 1.4-liter engines for the Chevrolet Cruze and the Chevy Volt plug-in electric car, two key products in the century-old automaker's plan to turn itself around after relying on highly profitable truck and SUV sales.
The plant's engines will extend the range of the rechargeable Volt, GM's high-profile next-generation vehicle that will be able to travel 40 miles on electricity alone. They will also power the Cruze, GM's new small car that is supposed to get around 40 miles per gallon.
Also Wednesday, Chrysler Financial, the company's dealer and consumer finance arm, warned dealers that it may temporarily stop financing vehicle inventories if dealers keep pulling large amounts of their money out of an account that helps fund those loans.
Chrysler Financial said in a letter to dealers dated Dec. 12 that recent withdrawals from the company's cash management account have been "unusual and unprecedented."
Sluggish auto sales worldwide are taking a toll on foreign automakers as well. Honda Motor Corp. said Wednesday that it would halt expansion in Japan, Turkey and India and cut 450 temporary workers in Japan through February.
Nissan Motor Co. said it would reduce Japanese production by 78,000 vehicles and also cut 500 temporary workers there.