General Motors and PSA Peugeot Citroen announced a global alliance that the two companies said will save them $2bn annually within about five years and begin launching vehicles from 2016.

The US and French carmakers said they would share vehicle platforms, components and modules, and create a global purchasing joint venture to buy commodities and parts that would have combined purchasing power of $125bn a year.

Dan Akerson, GM’s chief executive, described the deal as “a broad-scale global strategic alliance that will improve each company’s competitiveness and will contribute to the long-term profitability in Europe particularly, but around the world as well.”

GM and PSA said the alliance would be supervised by a joint steering committee that include an equal number of senior executives from both companies.

The tie-up will give GM and PSA, which have joint sales of about 12m, global industry leadership in production of “B” compact and “D” upper-middle segment cars.

PSA will raise about €1bn through a rights issue subscribed by GM and its shareholders, including the Peugeot family, which own just under 31 per cent of PSA’s shares. GM will become the company’s second-largest shareholder after the Peugeots.

The two companies said the alliance was not a merger, and said that it would not change any existing plans to rationalise their operations in Europe, where both PSA and GM’s Opel unit are losing money and have more plants than they need.

“It is down to each company to address its performance in Europe,” Philippe Varin, PSA’s chief executive, said.

GM and PSA said the cost synergies would be split about evenly between the two carmakers, which will continue to compete and sell cars under their own brands.

Steve Girsky, GM’s vice-chairman and chairman of Opel’s supervisory board, said that as the alliance added programmes and services, the $2bn number could grow.

The Franco-US carmaking alliance marks GM’s first tie-up with a rival producer since it exited bankruptcy in 2009. It will be the closest relationship with a rival yet for PSA, which has a web of limited partnerships on single projects with other carmakers, but until now has guarded its independence.

GM and PSA had been talking for several months about an alliance. The negotiations became public last week.

Mr Varin said that the alliance grew out of “ a growing realisation of very concrete synergies that exist between our companies.”

Both GM and PSA are losing money in Europe because of structural overcapacity in the industry, which is forcing all mass-market carmakers into competitive discounting.

PSA , when it reported 2011 financial results in February, disclosed that it burned through €1.6bn of cash last year, and said it was selling €1.5bn worth of assets this year to bolster its liquidity.

The French group also said it was squeezing an additional €200m of cost savings out of its operations, postponing a new plant project in India and cutting research and development spending to conserve cash.

When asked why PSA did not take a stake in GM as part of the alliance, Mr Varin said: “The best use of our rights issue is to finance the development plans we had.”

GM and PSA’s alliance will initially focus on small and midsize cars, multipurpose vehicles and small sport utility vehicles, or crossovers. The two companies said they would also consoider developing a new common platform for low-carbon vehicles.

General Motors’ shares were roughly flat after the announcement of the merger, which was made on Wednesday afternoon after European markets closed.

Opel’s union gave the alliance announcement a muted welcome, saying that it presented “opportunities and risks”.

“The European Employee Forum have identified risks arising from the increasing complexity of the many existing co-operations of PSA with other car producers,” the group said. “Further challenges are the escalation in engineering complexity due to increased model diversity, effects of committed resources as well as the additional costs for setting up the cooperation.”

Alliances between rival carmakers have a patchy track record. Daimler demerged Chrysler in 2007 after an acrimonious partnership that lasted nine years, and Volkswagen and Suzuki are in arbitration after an alliance they concluded in 2009 hit the rocks last year.

Rival carmaker Fiat made an abortive bid to buy Opel in 2009, when GM was considering selling it because its US government bailout barred it from covering its losses in Europe. GM later decided to keep Opel for itself, but despite closing a plant and cutting about 8,300 jobs, has failed to restore the unit to profitability.

“The European auto industry is running out of options,” Arndt Ellinghorst, head of European automotive research with Credit Suisse, said of the alliance. “This is obviously worth the effort, but whether it’s going to be successful, who knows?”

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