Talks of a tie-up between Peugeot and Opel reportedly dropped image

General Motors and PSA Peugeot Citroen have halted talks on further integration amid doubts about the French carmaker’s worsening finances and government-backed bailout.

According to people familiar with the matter quoted by Reuters, the companies, already pursuing an operational partnership announced in February, had also been considering a full combination of Peugeot with GM’s European unit Opel. These discutions were allegedly broken off after Peugeot accepted a state guarantee for its lending arm, Banque PSA Finance and announced a further deterioration of its cash position.

One of the sources said GM and PSA have agreed to a pause in early-stage talks on a Peugeot-Opel deal, as the government bailout is sabotaging the plan. According to another source, the two carmakers believe any deeper tie-up is unlikely before 2014, when the market is expected to recover.

“The government bailout conditions rule out French job cuts, which means a deal can’t happen any faster. It would be politically impossible to have all the cuts falling on the German side,” the unnamed source was quoted as saying by Reuters.

A Peugeot spokesman denied that there were Opel tie-up talks in progress, while GM had no comment on the issue. Peugeot and Opel are both suffering because of their dependence on the European market and a tie-up would have required deeper plant and workforce cuts on both sides, the same sources said.