Platinum Equity, a Beverly Hills-based private equity fund, is to buy most of the assets of Delphi, the distressed auto parts maker, in a $3.6bn deal partly subsidised by General Motors.

GM, which just received a $30bn cash injection from the US government, will supply most of the financing, a sign that the financial markets still have little appetite for automotive transactions.

GM, Delphi’s biggest customer, is also acquiring some troubled assets of Delphi, which has been operating under bankruptcy protection for nearly four years. In addition, GM said it is providing $250m to Delphi to help it emerge from bankruptcy protection.

GM will provide $2bn in cash toward Platinum’s purchase of Delphi. Calls to Delphi and GM were not returned, while Platinum declined to comment.

People familiar with the transaction say that GM is providing the financing because “every conceivable commercial financing was attempted without success”.

The US Treasury department voiced support of the deal, noting in a statement that “Delphi is a critical supplier to GM and we therefore support GM’s efforts to assist it in emerging from bankruptcy.” It added that GM had set aside money to support Delphi “some time ago.”

The purchase of Delphi comes as auto parts suppliers, like the carmakers themselves, are plagued by oversupply. Their plight has been aggravated by the fact that for years, their profit margins have been squeezed by their customers while they were forced to invest in technology and engineering to keep pace with industry demands.

Delphi’s fate will be closely monitored to see how badly its extended stay in bankruptcy has hurt it with international customers. It was part of GM itself until 1999.

The purchase must still be approved by the bankruptcy court. In the past, hedge funds, which control a large part of Delphi’s debt, attempted to acquire the company out of bankruptcy. But those attempts fell apart as creditors squabbled about the exit financing required.

Platinum is betting that Delphi will be a beneficiary of consolidation, rather than a victim. It has valuable technologies and assets that it can continue to sell.

Additional reporting by Tom Braithwaite in Washington

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