Leading French carmaker PSA Peugeot Citroen is in talks with US giant and world number one General Motors on forming a "strategic partnership," French Labour Minister Xavier Bertrand said Wednesday.
The news sent Peugeot shares soaring almost 13 percent to 16.20 euros ($ 21.4) in early afternoon trade on the Paris stock exchange.
"The chairman of the group informed me last night about discussions for a strategic partnership and told me it was good news for the group", Bertrand told Europe 1 radio.
Bertrand said Peugeot chairman Philippe Varin had told him the deal would allow the French group to cut its production costs but he would not be drawn on whether the plan was for a full merger or a simple alliance.
The minister said the talks were broadly good news but that his government was seeking assurances French jobs were safe. President Nicolas Sarkozy is seeking re-election in nine weeks and Peugeot is a major French employer.
The French state helped bail-out both Peugeot Citroen and its rival Renault during the recession that followed the 2008 credit crunch but does not hold a stake in the group. It will nevertheless watch the talks closely.
"The government does not interfere in decisions taken by big private groups but obviously we're watching the situation at PSA closely because it concerns French industrial strategy and jobs," said Budget Minister Valerie Pecresse.
Peugeot confirmed overnight it was in talks with other carmakers, without identifying GM, and the business daily Les Echos said the two groups were planning to announce their alliance at the Geneva motor show next month.
"In the context of its globalisation strategy and improving its operational performance, PSA Peugeot Citroen looks at potential cooperations and alliances," the firm said in a press statement.
"Discussions are taking place and there can be no certainty at this stage that these discussions will result in any agreement," it said.
General Motors also refused to confirm the deal, saying simply: "GM regularly holds discussions with others in our sector but wishes to make no comment on this specific information."
The Peugeot family controls 30.3 percent of the capital and 45.75 percent of voting rights in the firm which effectively took over French car manufacturer Citroen in 1976.
Last year, the firm, which employs 205,000 people worldwide, sold 3.5 million cars around the world, two-thirds of them in Europe where the market is under pressure as the economy slows sharply.
The Financial Times reported that the alliance would see Peugeot and GM's European subsidiary Opel Vauxhall jointly developing parts and engines in Europe for vehicles sold under their respective brands.
PSA revealed last month that it was open to the idea of an international alliance but rumours had earlier focused on a possible tie-up with the US and Italian group Fiat-Chrysler.
PSA's sales fell 1.5 percent last year and its net profit was cut in two, to 588 million euros ($777 million).
But the group has struggled to compete globally with industry mammoths like GM, Toyota and Volkswagen and auto alliances such as Renault-Nissan and Fiat-Chrysler.
Source: AFP American Edition