FRANKFURT, Germany: General Motors (GM) and Frances PSA Peugeot Citroen, both struggling in Europe, are forming an alliance to share car platforms and purchasing power.

As part of the alliance, Detroit-based GM intends to take a 7%  stake in the French automaker, making it the second-largest shareholder behind the Peugeot family. Peugeot will raise $1 billion in new capital.

The two companies are seeking efficiencies to make them more competitive in Europes car market. GMs European business lost around $700 million last year but the company says its determined to turn it around.

Europes mass-market car market is brutally competitive. A large number of manufacturers and low prices means carmakers dont profit much per vehicle, emphasizing that costs need to be kept low.

Both companies say theyll continue to sell their own vehicles independently and on a competitive basis. The deal will mean they can leverage a combined purchasing volume of $125 billion with suppliers.

This partnership brings tremendous opportunity for our two companies, said Dan Akerson, GM chairman and CEO. The alliance synergies in addition to our independent plans, position GM for long-term sustainable profitability in Europe.

Philippe Varin, chairman of the managing board of PSA Peugeot Citroen, says the partnership was rich in its development potential.

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, he says.

The companies say the alliance will focus on small and midsize cars, sharing seleced platforms and larger parts modules to gain cost savings from larger volumes. The first common platform is expected to launch by 2016.

©The Canadian Press