PSA Peugeot Citroen is to scale back its alliance with US company General Motors.
Peugeot said a joint small-car programme with GM is likely to be cancelled.
“Further analysis showed that the business model just wasn’t there,” a Peugeot spokesman said, without elaborating.
That word came as the troubled French carmaker posted a 3.7percent decline in quarterly revenue.
General Motors took a seven percent stake in Peugeot after they announced a broad-based alliance early last year, aimed at making major savings.
Some of that was achieved with joint purchasing, and they are making two minivan models together, but the small car project was seen as key.
Peugeot is now pursuing tie-up talks with its Chinese partner Dongfeng even as it cuts jobs and reduces plant capacity in the face of falling European sales, particularly in the south.
Peugeot hopes to raise three billion euros through a capital increase in which the French state and Dongfeng would each take a 20-30 percent stake, according to a Reuters report.