PARIS/LONDON (Reuters) -- General Motors scaled back cooperation with Peugeot months into their alliance and later turned down a government-backed merger, leaving China's Dongfeng as the French carmaker's last hope, people familiar with the matter told Reuters.
GM took a 7 percent stake in PSA Peugeot Citroen after the carmakers announced what was billed as a broad-based alliance in February 2012.
Yet the pairing hit obstacles within eight months, when GM revealed its Chinese partner SAIC would veto key plans including for larger cars, said the sources, who declined to be identified because the matter was confidential.
"We never found out whether GM had known that all along," one person said.
By June this year, Peugeot had won French government approval for a restructuring tie-up with GM's Opel division, but the U.S. carmaker turned it down, citing CEO Dan Akerson's likely succession by early 2015 and political sensitivities, people said. GM is still 7.3 percent U.S. government-owned.
The series of setbacks with GM has forced Peugeot CEO Philippe Varin to look elsewhere for a cash injection amid mounting concern over the company's finances.
Peugeot shares fell 9.1 percent today after Reuters reported the company was preparing a 3 billion euro ($4 billion) capital increase in which Dongfeng and the French state would buy matching stakes of between 20 and 30 percent.
The move would reduce GM's stake in Peugeot and give the Chinese state-owned carmaker access to its French partner's technology, in return for help in potential new markets, according to people with knowledge of the talks. Peugeot and Dongfeng already have a Chinese joint venture, DPCA.