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PSA Peugeot Citroen sours co-op deal with GM after taking government assistance.

GM and PSA Peugeot Citroen have stopped earlier talks to co-develop vehicles together for sale in Europe, according to sources who remain unnamed. The two companies already have an operational partnership in place, but wanted to take it to a deeper level.

The reason for the breakdown, Reuters reported, is due to concerns over the financial troubles and government bailouts at the French automaker. One source said the talks are in "pause," and that the government bailout is "sabotaging the plan."

A different informant believes the deal isn't likely to resume until 2014, when the market is expected to bounce to healthier levels. At the same time, the government assistance means no French jobs could be cut, which makes any tie-up politically impossible, as all reductions would have to be made on the German side, at Opel.

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Low demand has led Peugeot to cut 10,000 jobs and close a local plant, while GM is dealing with the union to close an Opel factory in Germany.

One of the options under consideration was to have GM transfer Opel to the combined company and grant them $5 billion to offset future losses and restructure, said one of the sources. This would let GM remove Opel, an underperforming unit, from its own accounting books.