While potential synergies have been identified, PSA is treading cautiously to avoid building expectations, mindful of the 2010 failure of advanced tie-up talks with Mitsubishi Motors.
"A partnership with GM would make sense, because Peugeot and Opel both lack scale," said Sascha Gommel, a Frankfurt-based Commerzbank analyst, adding that Fiat is also a potential partner.
"Peugeot's in a difficult situation because competitors like Volkswagen and Renault-Nissan can produce much higher volumes and so have a scale advantage," Gommel told Bloomberg.
GM is struggling in Europe with its unprofitable Opel brand. The automaker's Europe business, including the Opel brand, lost $747 million last year before taxes and interest.
PSA's 2011 sales in Europe plunged 8.8 percent to 1.68 million vehicles, while GM's dropped 1.9 percent to 1.17 million. Volkswagen's European sales rose 7.8 percent to 3.17 million.
PSA's global deliveries fell 1.5 percent to 3.5 million vehicles in 2011.
PSA's stock has slumped by 50 percent over the last 12 months, bringing its market value to 3.4 billion euros ($4.5 billion), while the carmaker had revenue of 59.9 billion euros in 2011.
The automaker last week announced plans to sell 1.5 billion euros worth of assets to reduce debt, which widened to 3.4 billion euros in December.
Any alliance involving the French carmaker will require the support of the Peugeot family, which controls 30 percent of the stock. PSA's Varin said last week that the company was willing to investigate partnerships as long as they were in line with the group's strategy, include greater expansion outside Europe, and contributed synergies while maintaining PSA's independence.
The PSA-GM alliance under discussion includes shared manufacturing beyond Europe and would amount to more than a product-specific deal of the kind PSA also has with Ford Motor Co., Toyota and BMW.
Among its existing production deals, PSA currently manufactures diesel engines with Ford, gasoline engines with BMW and small cars with Toyota. It also shares some vehicles with Mitsubishi Motors. Talks on a deeper alliance with Mitsubishi foundered in 2010.
PSA issued a short statement that said: "In the context of its globalization strategy and improving its operational performance, PSA/Peugeot-Citroen looks at potential cooperations and alliances, There can be no certainty at this stage that these discussions will result in any agreement."
GM spokesman Johan Willems said: "We routinely talk with others in the industry, but have no comment beyond that."
Fiat not in talks
Fiat isn't currently in talks with PSA, a person familiar with the matter told Bloomberg today. Fiat held talks with PSA after the 2008 financial crisis regarding a possible combination, a person familiar with the matter said. Negotiations failed because the Peugeot family didn't want to lose control over the carmaker, the person said.
Fiat CEO Sergio Marchionne said last month in Detroit he's willing to participate in industry consolidation in Europe and would consider adding a third partner before a planned merger between Fiat and U.S. automaker Chrysler Group.
Carmakers in Europe need to consolidate to compete with VW, which had a market share in the region of 23.3 percent last year, Marchionne said Jan. 10.
He said at the time that Fiat wasn't discussing with PSA or other potential partners, including GM's Opel unit, though he wouldn't close the door on any eventual alliances.
Reuters, Bloomberg, David Phillips and Paul McVeigh contributed to this report