GM yet to reap full benefits of links with Europe's carmakers

General Motors scaled back its alliance with Peugeot and put a brave face on yet another setback for its efforts to seek growth in Europe through collaboration and partnerships.

It was the second time in a year GM had trimmed its expectations of a deal that was agreed in February 2012 but said the alliance could still offer up new opportunities.

In a joint press release on Thursday, the car makers canceled a joint vehicle project and said annual savings from sharing development costs on a raft of projects will now come to only $1.2 billion, rather than $2 billion.

"The partners are now focused on execution of the Alliance while remaining open to new opportunities," GM's executive vice president and Opel Chief Executive Karl-Thomas Neumann said.

Work to develop a light commercial vehicle, a multi-purpose people carrier and a crossover SUV would continue, they said.

But PSA and General Motors said they would stop joint development of a common vehicle platform and small petrol engine, once again reducing the scope of what was intended to be a broad-based alliance announced in February 2012.

"Joint ventures always start with overly ambitious targets," ISI analyst Arndt Ellinghorst said, adding that he currently estimated joint savings for Peugeot and GM to amount to zero.

"Partnerships can work, but it always takes much longer for the benefits to materialize," Ellinghorst said.

The Peugeot-GM alliance had sought to save cash through joint purchasing, logistics and three programs to develop small cars and two minivan families, for introduction in 2016 through 2018.

For GM it is the second attempt at forging a broad-based alliance in Europe. Previously, it had sought to develop small vehicles with Italian partner Fiat , but that venture fell apart in 2005 and GM was forced to pay Fiat $2 billion to dissolve the partnership.

Peugeot, its sister brand Citroen and Opel are among those worst-hit by a European car sales slump that put a $1.8 billion dent in GM's 2012 earnings. Over the past 13 years, GM has racked up losses of more than $18 billion in Europe.

(This version of the story corrects paragraphs 2 and 6 to say deal was agreed in February 2012, not February 2013.)

(Editing by Anna Willard)