General Motors and alliance partner PSA Peugeot Citroen have halted talks on a deeper tie-up because of misgivings about the French carmaker’s finances and government-backed bailout, sources have said.

Reuters noted the companies announced an operational partnership in February and had been exploring ways of expanding this further but these discussions have apparently been broken off after Peugeot accepted a state guarantee for its lending arm last month and announced a further deterioration of its cash position.

GM and Peugeot planned to pool European purchasing, logistics and vehicle programmes, including a project – dropped last month – for a future small car for Brazil.

The deal also saw GM pay US$400m for a 7% stake in its troubled French partner.

Sources said that the two carmakers have agreed to a “pause” in talks on a Peugeot-Opel deal and any deeper tie-up is unlikely before 2014, when, hopefully, the market picks up.

One source told Reuters: “”The government bailout conditions rule out French job cuts which means a deal can’t happen any faster. It would be politically impossible to have all the cuts falling on the German side.”

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Neither Opel or Peugeot commented on the report.

Reuters noted that Peugeot is burning though EUR160m ($200m) of cash a month, is scrapping 10,000 jobs and a domestic plant. GM, which predicts European losses of US$1.5-1.8bn this year, is in talks to close its Opel factory in Bochum, Germany.

Analysts say that one option under discussion would have seen GM transfer Opel to a new combined entity along with a US$5bn cheque to offset future losses and restructuring.

Unlike Renault, Peugeot has no government shareholder but political influence has grown as its finances weakened leading to the EUR18.5bn refinancing deal that put a ministerial representative on the board.

The government said it would also expect to be consulted on strategy and sounded a cautious note on the GM alliance. In October, industry minister Arnaud Montebourg told the French daily Liberation: “Peugeot needs to build alliances. But we need to measure their consequences for our country and obtain Peugeot’s commitment to preserve all its French sites.”

The French bailout sounded alarm bells in Detroit, particularly as Peugeot shares have plunged 57% this year, compared with a 25% gain by GM.

The decision to shelve a deeper tie-up may renew critical scrutiny of the existing alliance plan, already questioned by some investors as Peugeot has sacrificed other relationships and markets to pursue the broader GM alliance.

Ford, a longstanding engine partner, said in April it would stop making diesels with Peugeot and BMW dissolved their hybrid parts venture to team up with Toyota instead.