File picture: Stephane Mahe / Reuters.

PARIS - Fiat Chrysler (FCA) said on Thursday that talks with Peugeot owner PSA Group to create a $50 billion (R735bn) car-making group were going well, despite FCA being sued for "substantial damages" by General Motors late on Wednesday.

GM filed the lawsuit in the United States, alleging FCA had bribed United Auto Workers (UAW) union officials over many years to corrupt the bargaining process and gain advantages, costing GM billions of dollars.

"Talks are progressing smoothly," an FCA spokesman said on Thursday about discussions with PSA to create the world's fourth-biggest carmaker.

Asked whether the lawsuit might lead to a review of the two companies' valuations in the proposed merger deal, a source close to FCA replied: "No."

In a letter to employees, FCA Chief Executive Mike Manley said: "We are astonished by this filing, both its content and its timing. We can only assume it was intended to disrupt our proposed merger with PSA."

FCA will vigorously defend itself against this "meritless" lawsuit, the letter, which was seen by Reuters, said.

"We will not be slowed down by this act," Manley said, adding: "Let’s keep the performance up as it has clearly got some of our competitors worried."

PSA declined to comment on the GM lawsuit and its potential impact on the merger talks.

FCA and PSA plan to join forces in a 50-50 share merger that will create the world's fourth-largest car company, seeking scale to cope with costly new technologies and slowing global demand.

FCA would get access to PSA's more modern vehicle platforms, helping it to meet tough new emissions rules, while Europe-focused PSA would benefit from FCA's profitable US business featuring brands such as Ram and Jeep.

However, the deal could still face close regulatory scrutiny, while governments in Rome, Paris and unions are all likely to be wary about potential job losses from a combined workforce of around 400 000.

Reuters