Reports have it that General Motors and PSA/Peugeot-Citroen are in talks about a possible alliance. The news broke after PSA CEO Philippe Varin informed the French government – French Labor Minister Xavier Bertrand confirmed that Varin had told him about the talks between the two automakers earlier in the week.

Reuters reported that the two companies are discussing a broad manufacturing alliance, designed to stem losses in Europe and lower production costs in other markets, with a focus on sharing vehicles and parts rather than on a capital tie-up. PSA did however say in a statement that “there can be no certainty at this stage that these discussions will result in any agreement.”

It was also reported elsewhere that a tie-up would see the automakers jointly build cars and components in Europe. If the deal comes through, then PSA and GM’s Opel/Vauxhall unit are set to jointly develop engines, transmission systems and complete vehicles, which will then be sold under their respective brands.

Both companies are lagging behind in the European market – GM’s European business, including the Opel brand, was US$747 million in the red, before taxes and interest, with sales dropping by 1.9% to 1.17 million units. Meanwhile, PSA’s 2011 European sales volume went down by 8.8% to 1.68 million units.

If there’s a positive outcome to the discussions, an accord could well be announced at the Geneva show early next month, yet another report indicated.