GM in alliance talks with Peugeot in Europe

PARIS — General Motors Co. is in talks about a possible alliance with France's leading car maker PSA Peugeot Citroen, a deal that could dwarf PSA's partnerships with BMW, Mitsubishi Motors and Toyota.

Peugeot Citroen shares surged on news of the talks, which were confirmed Wednesday by France's labor minister.

The Paris-based maker of the Peugeot 207 hatchback and Citroen C4 Picasso minivan lost (euro) 439 million ($578 million) on its car business last year amid falling sales and concerns over management's strategy among industry analysts. The family controlled company whose roots stretch back over 200 years has been hard hit by the economic downturn in Europe, where it sells more than 50 percent of the 3.5 million cars it sells annually.

Peugeot released scant details about the talks. Its statement said only that it was examining "projects for cooperation and alliances" related to its strategy of "globalization and performance improvement."

On Wednesday, GM said only that it routinely talks with other companies in the industry.

French Labor minister Xavier Bertrand said Peugeot Chief Executive Philippe Varin had informed him Tuesday evening of the talks about a "strategic partnership" with GM.

"He told me that it's good news for the group because it will allow them to cut costs on each vehicle," Bertrand said in an interview of French radio Europe 1. Bertrand said the proposed deal would give Peugeot Citroen the size it lacks to compete on a global scale. Peugeot "is above all a European champion, a national champion. If you have access to a global dimension, it's not a handicap," Bertrand said.

Peugeot shares rose more than 20 percent to a four-month high at one point on the Paris stock exchange as investors applauded the possible tie-up. In late trading. The stock rose 12 percent to close at 16.13 euros per share.

GM shares were down 40 cents, or 1.5 percent, to $26.66 in midday trading.

News of the talks comes just ahead of next month's Geneva Motor Show, and will undoubtedly be one of the main topics of discussion at Europe's biggest annual car industry gathering.

For Detroit-based GM, which makes the Chevrolet Cruze compact and Cadillac CTS luxury car, the talks raise the possibility that it might find a solution for its loss-making Opel and Vauxhall brands in Europe. GM Europe lost $700 million last year. Last week the head of General Motors Europe announced that the company was in talks with unions and employee representatives on ways to cut costs and return Opel and Vauxhall to profitability.