Opel said on Friday it needed the German state to guarantee more than €1 billion ($1.3 billion) in loans, fearful that cash coming from GM headquarters in Detroit could dry up and leave it unable to pay its suppliers, creditors and 25,700 employees.
The firm accounts for nearly half of GM's 55,600 employees in Europe, where almost one in 10 vehicles sold carries a brand owned by GM such as Opel, Vauxhall, Saab or Chevrolet.
Merkel said after meeting Opel managers in Berlin that "by Christmas" the finance and economy ministries would decide, together with representatives of the four states where Opel has plants, if it would provide such a guarantee.
"It has not been decided yet if using such a guarantee is even needed. That depends on events in the United States," Merkel told a news conference after the talks in Berlin.
"We also agreed ... that if the guarantees are needed, then the funds will stay in Germany, at Opel. To ensure this, the necessary precautions must be taken," she said.
GM Europe chief Carl-Peter Forster said that he had asked for guarantees of just over €1 billion ($1.3 billion).
"We felt obliged to make sure that even in the worst-case scenario, including when it comes to developments in the US, the continued survival of Adam Opel GmbH is assured," Forster said.
Earlier this year, the US Congress approved a $25-billion loan guarantee programme to help the "Big Three" - GM, Ford and Chrysler - and the firms have told lawmakers they need the same amount again.
The White House warned on Monday that car makers must make do with existing funds.
Merkel, whose country, like the United States, is highly dependent on the automobile industry for jobs and which last week officially entered recession, is not just faced with problems at Opel.
Some 750,000 people in Europe's biggest economy work in the struggling auto sector, not just for carmakers like BMW or Volkswagen but also for parts makers such as Bosch or Continental as well as in a host of other related sectors.
With many of these companies reporting plunging sales, laying off workers, stopping production and warning on profits, Berlin is coming under pressure to help not just Opel but the sector as a whole. Most vocal have been the states where the car firms have their factories, such as North Rhine-Westphalia, home to Opel's second biggest factory as well as a large plant owned by Ford.
Press reports said any guarantees for Opel would be covered by the federal government and by the states where the company has factories.
Ministers in Hesse, where Opel has its largest plant, on Monday approved a bill that would see €500 million made available in guarantees for firms in the auto sector. For the moment, however, ministers in Berlin are trying to hold the line against a wholesale industry rescue, with Merkel on Monday describing Opel as a "special case."
"A wholesale economic programme for the auto industry makes no sense," Finance Minister Peer Steinbrueck told the Bild daily while Economy Minister Michael Glos described Opel as a "special case."
Merkel has unveiled some measures to help the auto industry as part of a general economic stimulus package, including making new cars exempt from road tax for a certain period, and longer for low pollution models.
The measures - and indeed the whole stimulus package with Germany now officially in recession - have been widely criticised by economists and employers as being too little, too late.
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