The owner of Peugeot said it could buy Vauxhall and Opel from General Motors (GM) in a deal that would transform Europe's car market.
PSA Group is in talks over a "potential acquisition" of GM's European car business, as it explores "strategic initiatives" aimed at boosting profits and cutting costs.
However, it said there could be "no assurance that an agreement will be reached".
GM employs around 35,000 people in the UK under the Vauxhall brand, including 4,500 staff at plants in Ellesmere Port and Luton.
A spokesperson for PSA said it has been working with GM on three projects across Europe since 2012, which delivered "substantial synergies" for both groups.
"Within this framework, General Motors and PSA Group regularly examine additional expansion and cooperation possibilities, as well."
PSA Group confirms that it is exploring numerous strategic initiatives aiming at improving its profitability and operational efficiency
"PSA Group confirms that, together with General Motors, it is exploring numerous strategic initiatives aiming at improving its profitability and operational efficiency, including a potential acquisition of Opel."
"There can be no assurance that an agreement will be reached."
PSA Group, which also owns Citroen and DS, saw its Paris-listed shares jump 5 per cent on news of a potential deal.
GM said last year that it had to raise UK car prices by 2.5 per cent after the EU referendum result caused the British car industry to hit a ''speed bump''.
The US motor giant behind Chevrolet and Cadillac added that its European arm was on course to break even before the plunge in the value of the pound following the Brexit vote.
Announcing its full-year results last week, it said GM Europe had narrowed losses to €242 million in the year to the end of December, from a loss of €765 million the year before.
It also drove down fourth-quarter losses to €232 million, from €280 million in the three months to December 31 2015.
A deal between the two groups would create an automotive giant with around 16 per cent of the European car market.
GM and PSA Group formed an alliance in 2012, but in 2013 GM announced it was selling its stake.
In 2009, GM agreed on a sale of a majority stake in Opel to Canadian car parts firm Magna International and Russian lender Sberbank but called the deal off.
Opel has struggled to control costs due to stronger worker protections in Europe, and faces a highly competitive market for everyday transportation.
Chinese firm Dongfeng Motor and the French Government each own a 14 per cent share in PSA Group.