Image caption PSA Peugeot Citroen sales fell 9% in Europe last year

General Motors and PSA Peugeot Citroen have announced a global alliance that will see them develop cars together.

Under the deal, GM will take a 7% stake in Peugeot, making GM the second biggest shareholder in the French firm after the Peugeot family.

The two firms will share engineering development and hope to launch the first common design by 2016.

They hope to save money by combining purchasing and by 2017 they expect to save some $2bn (£1.3bn) a year.

The strategic alliance between PSA Peugeot Citroen and General Motors (GM) fits neatly with two key trends that are emerging in the global motor industry

"This partnership brings tremendous opportunity for our two companies," said Dan Akerson, GM's chairman and chief executive.

"The alliance synergies in addition to our independent plans, position GM for long-term sustainable profitability in Europe."

Both companies have been struggling in Europe.

GM's European brand, Opel, brand lost $747m (£472m) last year.

Despite tough trading conditions Peugeot made a profit of 588m euros ($772m, £492m) in 2011, but that was down 48% on the previous year because of falling sales.

Philippe Varin, chairman of the managing board of PSA Peugeot Citroën said: "With the strong support of our historical shareholder and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement."