PSA Peugeot Citroen and Fiat-Chrysler are evaluating a deal that would create the world's fifth-largest carmaker producing around 8m cars and give both struggling companies global scale.
The French and US-Italian carmakers have held informal discussions about a merger earlier this year, according to sources familiar with the talks, as both companies consider a range of options to address their shared problems of high costs and patchy emerging market exposure, reports Henry Foy and Arash Massoudi.
Any deal would bring together two of Europe's most venerable automotive houses and carmaking family dynasties in an effort to tackle spiralling investment needs at both groups.
The two companies held talks that were paused by the completion of Dongfeng's investment in PSA, people briefed on the talks said, stressing that the discussions are preliminary in nature and any major movement is expected next year.
They see benefits in combining Fiat and Peugeot's European operations and leveraging Chrysler's US presence, while PSA's Chinese shareholder Dongfeng Motor would provide both greater Asian access and fresh capital, according to four people with knowledge of the talks.
The talks are part of a range of potential options to fix problems at both companies, which this year have their hands full dealing with their own separate restructuring programmes.
Fiat only this year completed its acquisition of Chrysler, with the new Fiat Chrysler Automobiles due to be listed in the Netherlands in August, while PSA completed a tie up with China's Dongfeng in January and is making an Asian push.
"Negotiations have not started yet, but there have been discussions and I believe that 2015 will be a critical year," said one Paris-based banker with knowledge of the talks.
A spokesman for Fiat-Chrysler said that the company was not currently in talks with PSA. "We have discussions with everyone on targeted projects," the spokesman added.
PSA declined to comment.
