Shares in PSA Group, which owns Peugeot, jumped more than 5 per cent on speculation of a tie-up, with a spokesman for the French carmaker confirming that it was exploring a possible acquisition of GM’s UK and mainland European brands, the Telegraph reports.

If the deal were to go through, the combination would have about 16 per cent of the European car market, overtaking Renault as Europe’s second-largest car business behind Volkswagen.

It also poses questions over the future of Vauxhall’s plants at Ellesmere Port and Luton, which together employ around 4,500 staff.

While GM declined to comment, in a letter to staff, the company said it would “seek to ensure any transaction would serve the best interests of all our respective important stakeholders”.

Peugeot – which also controls the Citroen marque – is part-owned by the French government, which holds a 14 per cent stake after a state bail-out deal. This shareholding is matched by the Peugeot family and China’s Dongfeng Motor, both of whom hold 14 per cent.

GM and PSA already have a joint venture to produce new SUVs. This arrangement dates back to 2012, when GM took a 7pc stake in Peugeot as they formed an alliance in attempt to weather the then troubled European car market.

However, as Peugeot’s performance deteriorated, GM – which declared bankruptcy in 2009 as a result of the global financial crisis – sold off its holding for £250m in 2013.

GM’s European operations have proved problematic for the US car maker. Earlier this month the company reported strong overall results but a hoped-for return to profit from Vauxhall and Opel failed to materialise. GM has not made a profit in Europe for more than 15 years.

The company also predicted a $300m hit from Brexit-related losses for 2017, and said it had suffered a similar impact in 2016, mainly because of sterling’s drop in value against the dollar.