PSA Peugeot Citroën, led by the Peugeot family, may see control ceded to General Motors, according to the latest reports. The struggling French automaker has been crippled by shrinking sales in its home market of Europe, a problem compounded by its lack of exports.

Citing inside sources, Reuters reports that the Peugeot family has offered to give control of PSA to General Motors Company [NYSE:GM] in return for fresh capital needed to maintain operations through to the end of the year.

The same sources said that PSA’s Chinese partner Dongfeng was also a possibility.

Spokespeople for all three companies have denied the claims, however.

GM last year formed an alliance with PSA Peugeot Citroën, buying up 7 percent of the French automaker and announcing plans to share platforms and engines. Both automakers face overcapacity at plants in Europe, though PSA’s links with the French government has made job cuts hard to pass.

For any deal to work, GM, or perhaps Dongfeng, will need assurances that they will be able to make some job cuts.  

“PSA will need to present a new industrial plan for people to underwrite a capital increase, and the only hope is GM," one of the sources said. "They (GM) are ready to inject more money if they can control the business, integrate Peugeot and Opel and rationalize production.”

PSA burned through roughly $3.9 billion in cash last year and lost as much as $6.5 billion including asset writedowns. Recently, sales in Europe reached a 20-year low and prediction for next year is just as dire.

The Peugeot family, which founded Peugeot in 1810 as a coffee mill manufacturer, holds a 25.4 percent stake in the company but commands 38.1 percent of the voting rights.

In related news, China's Beijing Auto recently formed a unit to spearhead its acquisitions abroad and said it was looking at three medium-size European automakers.

Stay tuned for an update.


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