Fiat Chrysler and Groupe PSA, the maker of Peugeot and Citroen cars, announced Wednesday they were in merger talks that could propel them into the top ranks as the world's fourth largest automaker.
Italian-US carmaker Fiat Chrysler Automobiles (FCA) confirmed in a statement that "there are ongoing discussions aimed at creating one of the world's leading mobility groups" with France's PSA after reports of the talks began to circulate.
The statement and a similar one from PSA offered no additional details.
A person with knowledge of the matter told AFP on Tuesday that a merger -- which is not guaranteed -- would create a firm valued at about $50 billion.
A merger would bring PSA access to the lucrative US market, while finally fulfilling the long-held goal of ex-FCA head Sergio Marchionne, who died last year, to merge the carmaker with another in order to survive escalating costs and global pressure to roll out electric vehicles.
The tie-up would make the new automaker the fourth largest in terms of sales behind Volkswagen, Renault-Nissan-Mitsubishi and Toyota, and would combine a host of well-known brands from Alfa Romeo, Jeep and Dodge to Citroen, Opel and Peugeot.
Investors cheered the news. FCA shares in Milan raced over 9 percent higher in morning trading. Meanwhile, PSA shares climbed more than 6 percent in Paris.
The negotiations come four months after talks to merge FCA with Renault broke down, a potential deal scuppered in part by resistance from the French government, which owns a stake in Renault as it does PSA.
Analyst Michael Hewson at CMC Markets UK cautioned in a note on Wednesday that political pressure from Paris could again be an obstacle, given that the French government holds an approximately 12 percent stake in PSA.
"It is hard not to see that this attempt by Fiat might well go the same way as the failed Renault attempt earlier this year," wrote Hewson. "Business and government always make uncomfortable bedfellows."
France's economy ministry said in a statement that the state would be "particularly vigilant" about jobs, corporate governance and preserving the industrial footprint when assessing any merger.
The current negotiations "attest to the movement towards global consolidation in the auto industry, which is necessary and in which France wants to play its role," the ministry wrote.
The Italian government took a cautious stance.
"We are observing what is going on. It is a market operation and I think it is appropriate not to make declarations on this issue," said Italian minister for economic development, Stefano Patuanelli.
Under the FCA-PSA merger, Carlos Tavares, the chief executive of Peugeot's parent, Groupe PSA, would lead the company as CEO while John Elkann, chairman of FCA, would be chairman, the source said.
Discussions between the automakers are ongoing, the source said, confirming details first published in the Wall Street Journal.
According to Bloomberg News, FCA's board of directors is expected to hold an emergency meeting on Wednesday.
A merger of the two groups would bring under one roof Alfa Romeo, Chrysler, Citroen, Dodge, DS, Jeep, Lancia, Maserati, Opel, Peugeot and Vauxhall, while combining the strengths of the two groups.
Despite its Italian origins with Fiat, FCA does not have a very strong position in Europe compared to PSA with its French and German mass market brands. The company is also behind others in bringing electric cars to market, and investing in nascent forms of mobility such as self-driving cars.
PSA on the other hand is absent from the massive US market, where truck sales prevail and where FCA has Chrysler plus the Jeep, Dodge and Ram brands.
"Both FCA and PSA need an alliance," Marco Bentivogli, head of the Italian trade union Fim-Cisl, said late on Tuesday when reports of merger talks first began to circulate.
Patrick Michel, head of the FO trade union at PSA, commented that "I remain dubious -- but I do see a number of advantages ... this would give PSA greater heft vis-a-vis giants such as Toyota or Volkswagen, and it would give Fiat access to technology allowing it to respect future CO2 emission limits."
PSA posted a new record for revenues of 74 billion euros ($82 billion) in 2018 while FCA reported 110 billion euros in revenue.
The French group has a market capitalisation of 22.54 billion euros on the Paris Stock Exchange, while FCA is valued at just over $28 billion on Wall Street and 20.74 billion euros in Milan.
Milan, Italy | AFP