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German State Secretary Jochen Homann said Friday that Magna International Inc. (MGA) is the front runner to take over General Motors Corp.'s (GM) Adam Opel GmbH unit, but noted that the U.S. parent company still has to make the final decision on a deal.

"GM is negotiating with the bidders, not the (German) government," Homann added, at an industry conference in Munich.

Homann said a viable plan has to be found for Opel in order to justify financial support from the state, and that the auto industry still faces the problem of "significant over capacity."

"It doesn't matter if its 20%, 30% or 40% (over capacity). It's a structural problem," Homann said.

In May, GM signed a memorandum of understanding to sell a majority stake in Opel and its U.K. sister brand Vauxhall to Magna, whose bid is backed by Russia's Sberbank Rossia (SBER.RS) and auto maker OAO GAZ Group. The agreement isn't exclusive or binding, although Opel's powerful labor unions have already voiced support for Magna.

The tentative agreement with Magna is backed by EUR1.5 billion in bridge financing provided by the German government to keep Opel afloat as parent GM filed for bankruptcy protection in the U.S.

China's Beijing Automotive Industry Holding and Belgium-based private equity firm RHJ International SA (RHJI.BT) have also launched bids for Opel.

Company Web site: www.opel.de

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com