* Merkel ready to cede on wages, SPD drops tax demands

* Industry worried about economy, SPD voters sceptical

By Stephen Brown

BERLIN, Nov 17 (Reuters) - Angela Merkel's conservatives and Germany's Social Democrats have forged a political marriage before and know each other's ways, but as a new "big day" approaches, they are having to work hard to convince sceptical party members and the business world that they should give it another go.

Merkel's Christian Democrats (CDU) and Bavarian allies were the clear winners in September's election, taking 41.5 percent of the vote, but their former liberal partners in government lost all their seats, so the centre-right still needs to form a coalition with the humiliated centre-left.

After three weeks of negotiations on policy details, coalition talks enter the "hot phase" this week, and the knottiest problems must be resolved in a final session on Nov. 26 for the chancellor to have a new government by Christmas.

Both sides are making big concessions, but the conservatives want their landslide election victory reflected in the deal and the subsequent division of cabinet posts. Two conservatives spoke this weekend of "not letting the tail wag the dog".

The SPD had its second-worst result of the post-war era, appealing to just 25.7 percent of voters, but doesn't want to look like Merkel's doormat.

"Forty percent of voters chose the conservatives' platform. Support for the SPD's ideas was much lower. This simple fact has to be reflected in the 'grand coalition' programme," Finance Minister Wolfgang Schaeuble told Bild newspaper in a preview of Monday's edition.

From the sidelines, the industrial sector frets about the coalition undermining Europe's biggest economy.

Four big car manufacturers - Volkswagen, BMW , Daimler and GM's Opel - wheeled out their bosses for a joint newspaper interview on Sunday to warn, in the words of Daimler's Dieter Zetsche, that "if conditions in Germany deteriorate, we'll have to think about moving production elsewhere".

That will worry Merkel, known as the "auto chancellor" for her links to the sector, and SPD Chairman Sigmar Gabriel, whose party is close to the trade unions. Neither wants to put at risk the high employment rate and solid economic recovery.

After Gabriel told a party congress in Leipzig he wanted to "strengthen the economic competence" of the SPD, CDU Secretary General Hermann Groehe said this should mean "the coalition parties can work together to avoid putting German jobs at risk".

TIME TO DELIVER

If the devil is in the detail, he will make himself at home in a draft coalition document up to 160 pages long, the product of 12 working groups. SPD delegates in Leipzig will be ploughing through it before deciding how to vote in a ballot of 470,000 party members due by early December.