PARIS/FRANKFURT (Reuters) - PSA Group PEUP.PA boss Carlos Tavares, whose career has seen him thrash out margin-boosting labor deals for two carmakers in several countries, is now taking on Germany's IG Metall union, which has been the undoing of many a cost cutter.

FILE PHOTO: Chairman of the Managing Board of PSA Group Carlos Tavares attends a news conference in Ruesselsheim, Germany November 9, 2017. REUTERS/Ralph Orlowski/File Photo

Under Tavares, a former Renault RENA.PA executive, the Peugeot maker is demanding pay curbs and other concessions from workers at Opel, the loss-making German carmaker it bought from General Motors GM.N last year, in return for new investment.

The standoff could quickly take a political turn, amid reports PSA is also looking to shed thousands of jobs.

Chancellor Angela Merkel intervened publicly on Wednesday, saying PSA must honor commitments made prior to the acquisition - when Tavares told German leaders there were no plans for plant closures or compulsory layoffs.

“We expect above all that the company sticks to everything it promised in connection with the takeover,” Merkel said at a summit of German state premiers, adding her government was seeking talks with PSA management.

Western carmakers typically use plants in low-cost countries as benchmarks, warning higher-wage workers that failure to narrow the productivity gap could endanger their jobs.

Pressure on manufacturing costs has increased with investment demands for connected, autonomous and electrified car development. GM is now employing similar tactics to seek concessions from its South Korean workforce.

The U.S. carmaker failed to end Opel losses over two decades, hemmed in by German “codetermination” laws granting workers board seats and by IG Metall - which has thwarted or altered the plans of companies ranging from Volkswagen to Tesla.

BLUFF CALLED

Tensions have mounted at Opel since German workers called Tavares’ bluff last week, by rejecting demands they waive the 4.3 percent pay increase negotiated by IG Metall nationwide.

In response, PSA put investment plans on hold for the Eisenach plant in central Germany, tabling no new proposals. Unions fear the group may now begin planning to wind the plant down, triggering an all-out confrontation.

Eisenach, which will lose Opel Corsa subcompact production after the model is updated next year, would have built the new Grandland SUV under the paused investment, sources have said.

That plan would sustain only about half of the plant’s workforce of 1,800, union representative Wolfgang Schaefer-Klug said after a works council meeting on Thursday.

Opel could also cut 2,700-3,700 of the 7,700 jobs at its Ruesselsheim research center under scenarios discussed at the meeting, business magazine Wirtschaftswoche reported.

PSA human resources chief Xavier Chereau had warned of “consequences” if IG Metall rebuffed management proposals, after other unions in Spain and Britain agreed concessions, according to a union source with knowledge of the talks.

“We told him IG Metall is not like other unions,” he said.

FRENCH SQUEEZE

In Europe, French carmakers have led the squeeze on labor, extracting pay freezes and working time flexibility as investment recovered from the last major financial crisis.

Renault, with Tavares as second-in-command, struck a deal with Spanish workers in November 2012. That in turn helped cajole French unions into signing a similar pact three months later. PSA, under then CEO Philippe Varin, followed suit.

Such deals are part of the reason why PSA and Renault now regularly post automotive operating profit margins above 6 percent, compared with their 2-3 percent pre-crisis norms. By contrast, Volkswagen's VOWG_p.DE namesake volume brand raised its margin to 4.1 percent last year from 1.8 percent.

Opel and British sister brand Vauxhall lost 179 million euros ($221 million) for a negative 2.5 percent margin in the last five months of 2017, after PSA took control.

The French carmaker has said it discovered the full extent of Opel’s problems only once it had closed the acquisition - and months after giving assurances that no closures were necessary.

“IG Metall wants to apply the same methods it always has, which cost Opel 20 years of losses and 50,000 jobs,” said a source close to the French carmaker.

The French group referred Reuters questions to Opel, which said it remained hopeful that “codetermination-based dialogue” would achieve a deal.

“We want to pave the way for a sustainable future by unleashing investments based on the right level of competitiveness,” a company spokesman said, adding it aimed to avoid “forced redundancies”.

IG Metall has a history of humbling foreign managers.

Tesla TSLA.O became enmeshed in a German labor dispute soon after its 2016 acquisition of robotics specialist Grohmann, before eventually granting a 30 percent wage hike.

In one of its earlier failed attempts to halt Opel losses, GM negotiated the closure of its Bochum plant, north of Cologne - but only at the price of job guarantees for remaining workers of the kind Tavares is now seeking to unpick.

NO GUARANTEES

Staying competitive offers the “only guarantee” of future sustainability for PSA workers and sites, the PSA boss is fond of saying.

The group is so far refusing to renew the multi-year job and plant guarantees that typically accompany new production investments, according to sources on both sides of the talks, who asked not to be named. Current guarantees on jobs begin expiring this year, while Opel’s plants are covered until 2020.

“New guarantees are not on the table,” said one. Management is now insisting the unions come back with proposed cuts to Christmas and holiday bonuses and other supplementary pay, to offset the basic wage increase they refused to suspend.

Any PSA concessions on Eisenach would have likely repercussions for Opel’s Ruesselsheim and Kaiserslautern plants and the rest of its 19,000 German workforce. It could also undermine labor agreement across the broader group.

“We too have been through tough times and made considerable sacrifices for a competitiveness deal,” said Franck Don, a French official with PSA’s centrist CFTC union.

“French workers wouldn’t understand it if their Opel peers were not asked to make the same concessions they had to make. It would definitely create tensions in France.”

During investor pitches, however, Tavares has placed heavy emphasis on Opel’s German identity as a source of export growth potential - a stance that could be undermined by major cuts.

IG Metall is confident he will give ground, rather than face prolonged German strikes that could further damage Opel’s standing and performance, one union official said.

“The brand can’t afford to take any more scratches.”