Continental, the German tyre and car parts maker, rejected a €11.3 billion (£9 billion) bid yesterday from Schaeffler, the world's biggest manufacturer of ball bearings.

However, the board of Continental, which is three times bigger than Schaeffler, said that an agreement with its rival was desirable. The board said that Schaeffler must consider either a higher bid, which would offer a premium to shareholders, or be willing to limit its holding in Continental to “an acceptable level for Continental”.

Schaeffler, which is a private, family controlled business, made its move on Continental last week, launching a takeover bid and taking a 36 per cent stake.

A takeover of Continental would mark a massive consolidation in the German automotive industry as the car market is braced for continued tough times and components makers have been hit by sharp rises in the costs of raw materials.

Continental's share price has suffered continued falls since its purchase last year of VDO, Siemens' car parts business, which makes electronic and electrical components. Continental took on more than €10 billion in debt after the €11.4 billion purchase of VDO.

Schaeffler is owned by Maria-Elisabeth Schaeffler and her son Georg, who together were ranked 78th in last year's Forbes rich list with an estimated net worth of $8.7 billion (£4.3 billion).

Yesterday, Volkswagen, the biggest customer of both companies, said that it viewed Schaeffler's move as positive but it wanted to see a quick resolution to the takeover approach.

Europe's largest carmaker said that it did not want Continental to be broken up by its rival. Hans Dieter Poetsch, VW's chief financial officer, said: “We do view the approach of Schaeffler in principle as positive, under the framework conditions that we are not entering into a long battle, which at least would potentially carry the risk of deteriorating the operating business [of both companies].”

Times Recommends

• Equitable Life halts £7bn sale on market turmoil
• Potential buyers emerge to save Woolworths staff
• Terrorist attacks close Bombay Stock Exchange