The Peugeot family, founders of PSA Peugeot Citroen, could step back to let GM take over the ailing business. City sources have already warned that PSA could get close to not having enough free cash to run the business by the end of 2013.

A report from news agency Reuters suggests that if GM were to take control of PSA it would want to shut down factories and make redundancies in France and Germany, something the French government is unlikely to let Peugeot family do in its home market.

Peugeot is reported to have sought finance for the business elsewhere, but a lack of willing bidders has forced it to turn to GM, which owns seven per cent of the current business. The move was made with the support of current PSA Chief Executive Phiippe Varin, reports Reuters.

A similar bid to sell a substantial stake to a consortium led by Dongfeng Motor Group has already fallen through.

Overall the Peugeot family owns a 25.4 per cent stake in the company, but controls 38.1 per cent of the voting rights.

Speaking to Reuters, sources close to the ongoing discussions said: “The Peugeot family has now accepted that they'll lose control.

“PSA will need to present a new industrial plan for people to underwrite a capital increase, and the only hope is GM. They (GM) are ready to inject more money if they can control the business, integrate Peugeot and Opel and rationalize production.” Peugeot, which is heavily reliant on sales in its home territory, is fighting for survival according to the report.

GM bought 7 per cent of PSA in February 2012. Since then, the French Government stepped in with financial aid for Peugeot's own bank, ensuring it could still offer competitive finance to new car buyers.

The deal now hinges on GM. Sources say GM bosses need assurances that they would be able to cut plants and jobs “at reasonable cost.”

Widespread cuts in France, which would be almost certain under GM control, would be fiercely resisted by President Hollande's government. However, the French Government is said to understand that in order to return to profit Peugeot either needs to seek a larger tie-in with GM, or seek a similar deal with another industry partner. Peugeot, which employs 77,000 workers in France, has already mothballed its production plan in Aulnay and is scaling down production elsewhere.

Autocar noted last year that in bailing out PSA, the French government might have harmed long-term deal prospects.

Neither Peugeot nor GM has commented on the story.