By Paul Carrel and Edward Taylor
BERLIN/RUESSELSHEIM, Germany (Reuters) - Germany will do all it can to secure Opel plants and jobs in the country if Peugeot maker PSA buys the General Motors (GM) business, Chancellor Angela Merkel said on Friday, highlighting the political challenges the carmakers face in sealing a deal.
Her comments came as workers' representatives at German-headquartered Opel said they were prepared to hold talks with PSA <PEUP.PA>, as long as commitments to jobs and investments were upheld - some of which extend beyond 2020.
GM <GM.N> and PSA said this week they were in talks over a potential deal for the French carmaker to buy GM's European arm Opel, sparking concerns in Germany and Britain of job losses. Germany accounts for about half of Opel's 38,000 staff, while 4,500 are in Britain where Opel operates as Vauxhall.
Europe's car industry has been dogged for years by overcapacity and analysts think cuts will be needed for a deal to make sense. Two sources close to PSA told Reuters on Thursday that job and plant cuts were part of the tie-up talks, with the two Vauxhall sites in Britain in the front line.
However, any job losses would be fraught with difficulties, with elections in both Germany and France this year and Britain anxious to prove its departure from the European Union will not lead foreign investors to pull out.
"With Opel, the talks are under way. The government has a coordination process under way," Merkel told reporters after meeting Canadian Prime Minister Justin Trudeau in Berlin.
"We will do everything we can politically to secure jobs and sites in Germany," she added.
Merkel helped broker a deal in 2009 for Opel to receive government guarantees if GM sold a stake in the business to Canadian auto parts supplier Magna <MG.TO> to avert mass lay-offs among Opel's German workforce. GM ended up pulling the plug on that plan, however, instead restructuring, shutting Opel factories in Belgium and Germany and withdrawing the Saab and Chevrolet brands from sale.
Earlier, British business minister Greg Clark said he had been told by PSA executives in a meeting on Thursday evening that the French company planned to build on the success of the Vauxhall business if it succeeded in buying Opel.
French Industry Minister Christophe Sirugue also pledged on Friday to stay in daily contact with the German and British governments on the potential deal. The French government owns a 14 percent stake in PSA.
For PSA, owner of the Peugeot, Citroen and DS brands, buying Opel would give it a 16.3 percent share of Europe's passenger car market, vaulting it into second place in the region, ahead of France's Renault <RENA.PA> but behind Germany's Volkswagen <VOWG_p.DE>.
While economies of scale could help PSA reduce Opel's long-running losses, many analysts think it would also need to make cost cuts to make the deal work.
But Opel's labour leaders are in no mood for compromise.
"The fundamental basis for these talks ... must be the unequivocal recognition and implementation of existing agreements for all Opel/Vauxhall sites," the German and European works councils and trade union IG Metall said in a statement on Friday.
Opel Chief Executive Karl-Thomas Neumann tweeted: "A combination with PSA makes fundamental sense. I have great understanding for our staff and customers' many questions."
At Opel's headquarters in Ruesselsheim near Frankfurt, where European works council chairman Wolfgang Schaefer-Klug briefed staff for about 45 minutes on Friday, workers took the latest twist in Opel's fate in their stride.
"Comment allez-vous?" one grinning worker greeted another following the meeting.
(Additional reporting by Jean-Baptiste Vey in Paris and Kate Holton in London; Writing by Georgina Prodhan and Mark Potter; Editing by Maria Sheahan/Keith Weir)