February 27, 2012 / 7:24 PM / 7 years ago

GM in talks to buy small Peugeot stake: sources

The Peugeot 3008 Hybrid4 is pictured during the International Motor Show (IAA) in Frankfurt, September 14, 2011. REUTERS/Ralph Orlowski

PARIS/NEW YORK (Reuters) - General Motors Co (GM.N) is in advanced discussions to buy a small stake in French automaker PSA Peugeot Citroen (PEUP.PA) as part of their proposed strategic alliance in Europe, sources familiar with the situation said on Monday.

Under the terms being discussed, GM would likely buy a stake of less than 5 percent in Peugeot, the sources said. A deal could be announced in the next few days, although sources warned that no deal has been reached and talks could still fall apart.

A GM spokesman declined to comment. A Peugeot spokesman did not immediately return calls and messages seeking comment.

GM and Peugeot are discussing a broad strategic alliance designed to stem losses in Europe and cut production costs elsewhere, people familiar with the matter told Reuters last week.

For GM, an alliance would provide a means to lower operating costs at its loss-making European unit, Opel, while Peugeot would gain much-needed access to international markets at a time when auto sales in Europe are sagging, the people said.

Opel, which GM opted to keep in 2009 when then-CEO Ed Whitacre scotched a planned sale, is one of the key concerns for GM investors. Last year, GM lost $747 million in Europe and Morgan Stanley analysts value Opel at negative $8 billion.

GM Vice Chairman Steve Girsky has taken charge of the Opel restructuring, and GM said this month that it would detail further steps soon.

Analysts said an alliance with Peugeot would allow the companies to pool together resources to develop vehicles. But they added that it could take a decade to fully realize the benefits of the pact and more steps would be needed to overcome the core problem for both automakers in Europe: overcapacity.

“Frankly we believe it will introduce complications at a very delicate time in its own restructuring,” Guggenheim analyst Matthew Stover said last week. “In the grand scheme of things, GM has much more to offer PSA than the other way around.”

Reporting by Christian Plumb in Paris, Philipp Halstrick in Frankfurt and Soyoung Kim in New York; Editing by Phil Berlowitz

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