PARIS (Reuters) - French carmaker PSA Group PEUP.PA is planning an engineering blitz to redevelop Opel's core models with its own technology if it succeeds in buying General Motors' GM.N European arm, company sources and advisers told Reuters.

Carlos Tavares, Chairman of the Managing Board of French carmaker PSA Peugeot Citroen, arrives to attend a news conference to present the company's 2016 annual results at Peugeot headquarters in Paris, France, February 23, 2017. REUTERS/Gonzalo Fuentes

The Peugeot maker, which is in talks with GM on an Opel deal, wants to build the next Corsa mini on the same architecture as its Peugeot 208 and Citroen C3 models, several sources said.

This presents a tough challenge as the new GM model is due for an update in two years, leaving little time for a major reworking of its design. PSA’s alternative, however, would be to wait until around 2025 - the end of its next model cycle - to tap cost savings in the best-selling vehicle category.

Chief Executive Carlos Tavares outlined the plan at a PSA board meeting on Wednesday, one source said. The aim would be to fuse the small car categories that PSA and GM failed to combine under a looser 2012 alliance that missed key targets.

Tavares refused on Thursday to comment on the details of possible PSA-Opel vehicle programs as he presented record PSA earnings to reporters and analysts, stressing that the acquisition had yet to be agreed with GM.

But he said the combined company would aim to sell more than 5 million vehicles annually within “a few years”, confirming an earlier Reuters report. PSA and GM Europe delivered 4.3 million vehicles between them last year.

“When you look at the product plan you see that you can, in a quite speedy way, implement significant synergies,” Tavares said.

The next Corsa and related Mokka X mini-SUV are among a wave of small Opel cars already in development for launch in 2019. The two models represent 40 percent of GM’s European sales, according to LMC Automotive data.

PSA wants the Opel deal to yield cost synergies of between 1.5 billion and 2 billion euros ($1.6-2.1 billion), sources close to the talks have said.

PSA and GM have tried before to combine their small cars - the failed centerpiece of a “global strategic alliance” unveiled in 2012 and rapidly scaled back to three shared projects from 40 initially considered.

Gilles Le Borgne, the PSA engineering chief, told Reuters the earlier small car plans had foundered because GM chose instead to develop the Corsa on its own architecture, pursuing economies of scale between its Opel and Chevrolet brands.

“It’s completely different now,” Le Borgne said on Thursday, adding that engineering teams were ready to move fast. “It would be stupid to miss another cycle,” he said, adding that it normally takes more than three years to develop a new model.

JOB CONCERNS

A swift convergence of small car design and production may deepen concern over possible job losses, especially in Germany - home to about half the 38,000-strong GM Europe workforce.

The competing PSA and Opel small car and SUV line-ups are currently spread among no fewer than five European plants: Opel Eisenach, Germany, and Zaragoza, Spain; and PSA Poissy and Mulhouse, France, and Trnava, Slovakia.

Tavares has promised to honor existing GM plant and job guarantees, but many of those expire in 2018-2020 - around the time the first jointly-developed products would be arriving.

“Given the massive overlap of the two businesses, there should be no illusion as to what will need to happen,” Evercore ISI analyst Arndt Ellinghorst said in a recent note.

“It’s about hard restructuring in Germany, the UK and Spain resulting in at least 5,000 manufacturing job cuts,” he predicted. Evercore expects three plants to close by 2021.

While PSA will honor past deals, the company insists no new plant or job commitments are on the table. “We’d discuss those at a later stage,” a spokesman said, declining further comment.

The proposed deal would create a “European champion” and offer lifeline to Opel after 16 consecutive years of losses, CEO Tavares said on Thursday. “This company needs help.”

It would also tap future technologies such as PSA electric and plug-in hybrid transmissions due in two years, he said.

Joint engineering teams are already working well on vehicles developed under the 2012 cooperation deal, Tavares added, a point of view shared by one of that agreement’s architects.

“Opel’s been losing money for ever, it’s sub-critical mass and there’s no interesting technology,” said the executive, who helped draw up the original alliance plan. “But on the upside, a lot of the technical work is already done.”

($1 = 0.9475 euros)