Peugeot in alliance talks with GM

PSA Peugeot Citroen is in talks over a possible alliance with Detroit-based General Motors , a deal that could dwarf France's leading car maker's existing partnerships with BMW, Mitsubishi Motors and Toyota.

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

The Paris-based maker of the Peugeot 207 hatchback and Citroen C4 Picasso minivan lost 439 million euros ($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 car 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."

Labor minister Xavier Bertrand said Peugeot Chief Executive Philippe Varin had informed him on 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 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 on the Paris stock exchange as investors applauded the possible tie-up.