A group representing General Motors Corp. (GM) bondholders doubts whether the auto maker's survival plan will be enough to keep the company out of bankruptcy given the sharp decline in U.S. vehicle sales.

In a letter sent Sunday to U.S. Treasury Secretary Timothy Geithner and advisors to President Barack Obama's auto task force, advisors to the group say demands that bondholders swap two-thirds of their debt for equity in a restructured GM pose too much risk given the company's precarious state.

The debt-for-equity swap is a critical part of GM's plan to restructure out of bankruptcy with help from up to $30 billion in federal loans.

"We are concerned that the company is putting too much faith in a near-term turnaround in the economy that would enable annual car and truck sales to reach previous levels," says the letter, from bondholder advisors Houlihan Lokey Howard & Zukin Capital, Inc. "We do not know if the plan would, in fact, keep the company out of bankruptcy (in which case the securities received by the bondholders in an exchange would likely be worthless and the retirement funds and others who counted on these securities would be left with nothing)."

The bondholder group is seeking a more flexible deal from the government. Terms of GM's $16.4 billion federal loan call for bondholders to swap two-thirds of their debt for equity and to accept non-preferencial treatment behind non-bondholder creditors.

The group says it proposed a deal that would have met the two-thirds requirement, but has received no response from GM or Treasury.

Comprised of around a dozen big GM bondholders, the group has been negotiating with the auto maker since early this year on terms of a debt swap exchange.

But talks stalled weeks ago amid conflict between the bondholders and United Auto Workers, which is in a parallel set of negotiations with GM over allowing the auto maker to use equity rather than cash to fund billions in retiree health care obligations.

Both groups insist they are being asked to sacrifice more than the other, and both are lobbying the government to back off terms set by the former Bush Administration when it granted emergency loans to help GM and Chrysler LLC narrowly avoid a bankruptcy last year.

The bondholders group has come under fire from some lawmakers and a lead advisor to Obama's auto task force who have criticized the group for resisting the government's terms.

The thinking of the bondholders group is that such as deal may be difficult to sell to thousands on individual bondholders.

"We remain willing to play a constructive role in GM's restructuring and are open to proposals whose terms may differ from those set by the Bush administration but have the objective of turning the company around," the letter said.

The conflict comes as GM and Chrysler face a March 31 deadline to present the government with updated restructuring plans that are to include details of the debt exchange and a revised labor deal. The companies also are trying to convince the government to extend up to $21.6 billion in additional loans to carry them through a worse-than-anticipated global sales slump.

-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.