General Motors Co could shift more vehicle production to its European factories in a cost-cutting deal with its German union that could avert a damaging standoff and keep Opel out of bankruptcy, people familiar with the discussions said.

A potential agreement under discussion would include GM transferring some Chevrolet production from South Korea to Opel in Europe, people close to the leadership of German union IG Metall said. In exchange, GM would get a free hand to push ahead with the cost cutting it says it needs to save the brand.

Restoring Opel to profitability would remove a major drag on the U.S. automaker's operations and address one of the biggest uncertainties left untouched by the Obama administration's taxpayer-funded bailout in 2009.

GM declined to comment on the details of its talks with the German union.

We are not going to comment on speculation, but management, the works council and the supervisory board of Adam Opel AG are all in agreement that Opel has to become profitable, even in times of tough economic headwinds, GM spokesman Jay Cooney said. We are jointly discussing our strategy and will keep our employees and the public informed.

(Reporting by Christiaan Hetzner and Ben Klayman in Detroit, editing by Matthew Lewis)

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