General Motors Co. and PSA Peugeot Citroen are discussing a broad manufacturing alliance designed to stem losses in Europe and lower production costs elsewhere, sources with knowledge of the matter said.
Talks between GM, the world's biggest auto maker, and European No. 2 Peugeot are focused on sharing vehicles and parts rather than a capital tie-up, according to the people. Any new shareholdings that emerged would be small and symbolic.
Peugeot earlier acknowledged that alliance talks were taking place with an unnamed partner, sending its shares soaring after online newspaper La Tribune reported that discussions with GM had been under way for months.
"There can be no certainty at this stage that these discussions will result in any agreement," the Paris-based company said, without elaborating.
"We routinely talk to others in the industry but have no comment beyond that," GM spokeswoman Kelly Cusinato said.
While potential synergies have been identified, Peugeot is treading cautiously to avoid building expectations, mindful of the 2010 failure of advanced tie-up talks with Mitsubishi Motors .
Like Peugeot, GM's European Opel division faces heavy restructuring to reverse losses compounded by the region's slumping auto market and cut-throat price competition.
Peugeot on Feb. 15 announced new cost cuts and put its Gefco logistics business up for sale to help finance the overseas expansion it badly needs to reduce exposure to stagnating home markets.
With similar overcapacity problems and dependence on Western European small-car buyers, Peugeot and Opel have little to offer one another in the region, Credit Suisse analyst Erich Hauser said.
"We struggle to see how yet another 'me-too' co-operation with GM Europe on componentry will help address any of the fundamental issues," Mr. Hauser said in a note to clients, reiterating the bank's "sell" rating on Peugeot stock.
The French auto maker's shares were up 9.5 per cent as of 0849 GMT, paring the stock's 50-per-cent decline over 12 months - the worst performance on the 15-member Stoxx Europe autos and parts index.
One area of potential European co-operation is commercial vans, where Peugeot has said it is seeking a partner to replace Fiat after the Italian car maker withdraws from their Sevelnord joint venture in 2017.
But the Peugeot-GM alliance under discussion includes shared manufacturing beyond Europe, the sources said. It would amount to more than a product-specific deal of the kind PSA also has with Ford, Toyota and BMW.
In its earlier statement, Peugeot said it was pursuing talks "in the context of its globalization strategy" and to improve operational performance.
A planned India factory may be opened to a new partner, chief executive officer Philippe Varin disclosed last week, after freezing the project in January to save cash.
In presentations to analysts and reporters, Peugeot also said it was looking for ways to improve its performance in Latin America, where the company is still losing money.
The company has recently reiterated the controlling Peugeot family's insistence that any tie-up with a rival auto maker should preserve the French company's independence.
The family holds almost one-third of Peugeot's capital and half its voting rights.