A combination of PSA Peugeot Citroen and the Opel/Vauxhall unit of General Motors would create a Big Three in Europe and perhaps exert greater pressure on Volkswagen, the world’s largest automaker and historically dominant company on the continent.

PSA sold 1.9 million light vehicles in Europe last year for 9.8% of the market, a distant third to VW at 3.26 million deliveries and nearly 16.8% of industry sales, according to WardsAuto data. Renault-Nissan was No.2 at 2.9 million units and a 14.7% share.

But a PSA-Opel consolidation would net annual sales approaching 2.75 million units and more than 14.2% of the market, an overnight gain that puts it fast on the heels of a growth-minded Renault-Nissan and gives PSA greater access to the most profitable markets of Germany and the U.K.

It also would tighten competition between VW, Renault-Nissan and PSA in Europe at a time when a massive and costly technology shift is under way to electrification from diesel in the wake of VW’s emissions-cheating scandal.

GM would jettison a unit that has been unprofitable for more than a decade. A $5.2 billion restructuring bid launched in 2013 pulled Opel out of the red midway through 2016, but the U.K.’s surprise vote to exit the European Union pushed Opel back underwater and GM postponed expectations for its profitably to 2018.

Under Chairman and CEO Mary Barra and President Dan Ammann GM has shown little desire for capital outlays in markets with questionable returns on investment, demonstrated by decisions to pull its Chevrolet brand from Europe, exit Russia and Thailand/Indonesia and shift its Australian unit Holden to a sales and marketing subsidiary.

“A tie-up between the two would allow GM to reduce its exposure in Europe and give (PSA-Opel) higher volumes and better economies of scale,” says Sam Fiorani, vice president-global vehicle forecasting at AutoForecast Solutions in Chester Springs, PA.

A multi-billion-dollar purchase of the 118-year-old German auto brand Opel by the PSA family, confirmed under discussions in reports from Paris and Detroit, also would occur at a time when the European market finally is making headway in digging out from the global economic recession of the last decade. European sales, including Russia and other Eastern European countries, rose 5.2% to 19.39 million units from 18.44 million in 2015, marking the region’s best performance since 2008 when 20.56 million vehicles were delivered.

“This is General Motors’ third serious attempt at selling its Opel and Vauxhall brands, and the fallout from the Dieselgate scandal may be the catalyst this deal needed,” says Mykola Golovko, project manager at Euromonitor International, a London-based global market research firm.

“Not only is Volkswagen’s position in serious jeopardy but we also see a shift away from diesel-powered passenger vehicles, resulting in shrinking replacement cycles leading to continued sales growth in the region in the near- to mid-term,” he tells WardsAuto from Chicago.

However, a surprise decision by the U.K. to leave the European Union adds uncertainty to the market and further impetus to calls for automakers there to expand globally.

“This would potentially resolve some short- to medium-term problems for PSA, and a long-run failure for GM in Europe,” says Peter Wells, a professor of business and sustainability at the Centre for Automotive Industry Research of Cardiff University in the U.K.

Wells says PSA-Opel likely would drive difficult production rationalization in the region, a prospect certain to sit uneasily with labor groups already contending undisclosed talks between the automakers may have violated worker rights.

“It may leave PSA stronger in Europe, but what this group really needs is a stronger presence outside Europe,” Wells adds. “On its own this deal does little to contribute, though it might make PSA a more attractive partner.

“GM does not benefit greatly, either. It simply loses presence in one of the most important markets in the world and one which remains very much at the technological cutting edge. This is therefore a retreat by GM,” he says.

Unraveling Opel from GM, which has owned it since the 1920s, would be a massive undertaking. Much of GM’s car development is based in Germany, where a sprawling R&D facility sits in Russelsheim, although the automaker exports little to the U.S. from Opel operations and in recent years has narrowed the Opel brand’s global focus to Europe.

PSA and GM formed an alliance in 2012 on three vehicle projects with an eye toward saving $2 billion by 2018. The companies reduced the cost-savings target to $1.2 billion after scaling back ambitions. They each released statements Tuesday morning regarding Opel, a signal talks probably are in advanced stages.

“General Motors and PSA Group regularly examine additional (alliance) expansion and cooperation possibilities as well,” GM says in statement. “PSA Group and General Motors confirm they are exploring numerous strategic initiatives aiming at improving profitability and operational efficiency, including a potential acquisition of Opel Vauxhall by PSA.”

GM nearly sold Opel to global parts maker Magna International during its U.S. bankruptcy in 2009, but scrapped the idea to maintain a presence in the European market and retain the German operation’s engineering capacity and expertise.

PSA experienced its own troubles during the recession and, in 2014, after scaling back the GM alliance, scored a pivotal bailout from the French government and Chinese automaker Dongfeng. Each owns a 14% stake in the automaker. PSA also hired Carlos Tavares away from Nissan-Renault at the time and his cost-cutting and expansion efforts, most notably in China, have returned the automaker to profitability.

“Over the past three years, (Tavares) optimized the group’s model lineup and brought down costs,” Golovko says. “The ideal case scenario for both companies is that Opel will give PSA group the volume to increase operational efficiency across all brands and effectively exploit the growth potential in Western Europe.”

jamend@wardsauto.com