Leading French car maker PSA Peugeot Citroen is in talks with US giant General Motors on forming a "strategic partnership", according to French Labour Minister Xavier Bertrand.
Peugeot shares surged by more than 8% in early trading in Paris as news of the possible huge tie-up between the two industry giants spread.
Europe's number two car maker had said it was in talks on potential co-operations and alliances but did not name its possible partners.
A French online newspaper said that any deal would have to be approved by the Peugeot family, which holds 30.9% of the French company's share capital and 48.3% of its voting rights.
The Financial Times quoted two people familiar with the plan as saying that the tie-up would see the two car giants join forces to build cars and components in Europe.
PSA and GM's European Opel division both face heavy restructuring to reverse losses that have been compounded by the region's slumping car market, industrial overcapacity and cut-throat competition on prices.
