Panhard was originally called Panhard et Levassor, and was established as an automobile manufacturing concern by René Panhard and Émile Levassor in 1887. Panhard et Levassor sold their first automobile in 1890, based on a Daimler engine license. Levassor obtained his licence from Paris lawyer Edouard Sarazin, a friend and representative of Gottlieb Daimler's interests in France. Following Sarazin's 1887 death, Daimler commissioned Sarazin's widow Louise to carry on her late husband's agency. The Panhard et Levassor license was finalised by Louise, who married Levassor in 1890. Daimler and Levassor became fast friends, and shared improvements with one another. These first vehicles set many modern standards, but each was a one-off design. They used a clutch pedal to operate a chain-driven gearbox. The vehicle also featured a front-mounted radiator. An 1895 Panhard et Levassor is credited with the first modern transmission. For the 1894 Paris–Rouen Rally, Alfred Vacheron equipped his 4 horsepower (3.0 kW; 4.1 PS) with a steering wheel, believed to be one of the earliest employments of the principle.
In 1891, the company built its first all-Levassor design, a "state of the art" model: the Système Panhard consisted of four wheels, a front-mounted engine with rear wheel drive, and a crude sliding-gear transmission, sold at 3500 francs. (It would remain the standard until Cadillac introduced synchromesh in 1928.) This was to become the standard layout for automobiles for most of the next century. The same year, Panhard et Levassor shared their Daimler engine license with bicycle maker Armand Peugeot, who formed his own car company. In 1895, 1,205 cc (74 cu in) Panhard et Levassor vehicles finished first and second in the Paris–Bordeaux–Paris race, one piloted solo by Levassor, for 48¾hr. However, during the 1896 Paris–Marseille–Paris race, Levassor was fatally injured due to a crash while trying to avoid hitting a dog, and died in Paris the the following year.