Berlin  - The chief of Europe's biggest carmaker, Volkswagen AG, lent his support Friday to a merger between German tyre maker Continental AG and a smaller auto supply company, the Schaeffler Group.

Martin Winterkorn's comments to journalists came amid media reports of divisions within Continental, which is also a leading braking systems manufacturer, over how to proceed with Schaeffler's 11.2 billion euros (18 billion dollars) bid.

But in backing the fusion between the two companies, the VW chief also warned against the family-run Schaeffler group launching a hostile bid after Continental rejected this week the Bavarian-based company's 69.37 euros (110 dollars) a share bid.

Winterkorn told reporters in Wolfsburg, where VW is, based that a merger would be "altogether positive." While Continental was strong on the electronics side, Schaeffler, which is owned by billionaire Maria-Elisabeth Schaeffler, is strong on the mechanical side, he said.

"What I would not see as positive is a power struggle with a hostile takeover, in particular one which would disrupt the companies' business," said Winterkorn. VW is a key customer of both companies.

As a result, the VW chief favours a friendly merger. Schaeffler hopes to build up a strategic holding of more than 30 per cent in Continental but is not necessarily aiming for majority control. Schaeffler is not publicly listed.

Continental's chief Manfred Wennemer has insisted he will mount a defence against offer, saying it undervalued his company and was opportunistic.

But the German business daily Handelsblatt reported Friday that there were differing views on the Schaeffler bid among Continental's top management.

Quoting company sources, the newspaper said Continental chairman Hubertus von Gruenberg was not necessarily convinced that opposing the Schaeffler bid was the best course for Continental.

Handelsblatt went on to say that expressions of sympathy for the Schaeffler bid had been made at a key meeting of Continental this week.

In the meantime, German political leaders have been drawn into the debate.

While Guenter Beckstein, the premier of Schaeffler's home state of Bavaria, has spoken out in favour of the bid, Christian Wulff, the premier of Lower Saxony where Continental is based, has expressed concern about jobs if the takeover proceeds. (dpa)