Peugeot and GM drop large car and rejig alliance

General Motors and PSA Peugeot Citroen scrapped plans for a joint mid-size car program, narrowing the scope for vehicle sharing within their nascent alliance while adding engine cooperation.

The automakers said in a statement on Thursday that they had signed firm agreements on three out of four previously announced vehicles, to combine their future small car programs as well as roomier minivans and two sizes of crossovers - which combine features of sport utility vehicles (SUV) and passenger cars.

Plans to share future replacements for larger models such as the Citroen C5 and GM's Opel Insignia were shelved after the companies failed to reach a "convincing business case", a Peugeot spokesman said.

But with binding agreements on three other vehicle programs and new plans to pool a future generation of small gasoline engines, "the alliance is taking form and moving up a gear," the spokesman added.

The shared three-cylinder engines, designed to comply with Euro VII emissions standards entering force around 2019, will bring big savings for both partners, Peugeot said, without giving details.

The GM-Peugeot alliance plan, announced in February, has drawn investor skepticism as the French automaker's finances worsen, prompting thousands of domestic job cuts under close supervision by Socialist President Francois Hollande's government.

Earlier in the year, Detroit-based GM took a 7 percent Peugeot stake in a capital increase by Europe's second-biggest automaker, as it burned through nearly 200 million euros ($265 million) a month. GM is also struggling to stem losses in the depressed and highly competitive European market.

Talks on a deeper tie-up were halted last month as Peugeot's crisis worsened, sources with knowledge of the matter have said.

GM and Peugeot had faced a year-end deadline to reach firm agreements on proposed joint programs or scrap them to pursue their own projects.

They are due to give an update next month on their cooperation plans as well as the $2 billion in estimated annual savings both companies touted when the alliance was first unveiled.

Since then, the partners have put aside joint plans to develop a small car for Latin America, a dual-clutch gearbox and now the tentative mid-sized car program.

The door remains open to cooperation outside Europe, GM and Peugeot said on Thursday, pledging further "exploration of product and industrial initiatives in Latin America or other growth markets".

(Reporting By Christian Plumb and Gilles Guillaume; editing by Mark John)