MILAN/PARIS -- Fiat Chrysler Automobiles and PSA Group said they are in talks about a possible combination, in a potential deal that would reshape the global auto industry and create a European powerhouse to rival Volkswagen Group.
"There are ongoing discussions aimed at creating one of the world's leading mobility groups," FCA said in a statement Wednesday, confirming media reports. PSA issued a similar statement.
FCA and PSA could announce a tie-up agreement as soon as Thursday, a source close to the situation told Reuters on Wednesday.
A merger of the Italian-American automaker and PSA, the No. 2 for car sales in Europe, would create a global company with a current stock-market value of $47 billion — about the same size as Japan’s Honda Motor.
The talks come several months after Fiat Chrysler and PSA, led by CEO Carlos Tavares, explored a partnership on pooling investment to build cars in Europe, and following the collapse of negotiations between Fiat Chrysler and French competitor Renault in June.
The French government would play a key role in any deal because France is one of the biggest owners of PSA, whose brands include Peugeot, Opel and Citroen.
Analysts greeted word of a possible deal warmly.
"In our view the combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal and has a far greater chance of success," Max Warburton, a Bernstein analyst, wrote in a note to clients.
Automakers face tremendous pressure to combine forces and share costs from platform development to manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving.
Volkswagen in July said it will work with Ford Motor on electric and self-driving car technology, while Toyota is strengthening ties with partners such as Subaru and BYD Co.
In Europe, PSA and Fiat Chrysler face the additional burden of new emissions regulations that will force the industry to meet stringent fleet requirements next year.
"If completed, we believe this should ignite more rational industry behavior around allocation of capital, and this particular merger makes materially more sense than a potential FCA-Renault merger,” said Arndt Ellinghorst, an Evercore analyst.
He said it's an opportunity to achieve "gross synergies" above 7 billion euros ($7.8 billion) by 2023 due to overlapping businesses in Europe, Latin America and China.
The companies’ Chinese businesses have been trailing competition and it’s unlikely that a merger would quickly reignite their revenue growth in the world’s biggest car market. China’s Dongfeng Motor, which holds about 12 percent of PSA, could also have a say on the deal.
PSA has been floated as a logical merger partner with Fiat, because of their complementary product and geographic fit, and the two sides talked about a possible partnership earlier this year. However, the Italian-American carmaker instead pursued a deal with Renault. Those talks were called off in June amid opposition from the French government and a lack of support from Renault’s Japanese alliance partner Nissan.
Fiat Chrysler’s leaned-out figure offers North America volume and profit in the form of the Jeep and Ram brands, while PSA would bring Europe profitability to the marriage.
Fiat Chairman John Elkann had walked away from the potential deal with Renault blaming "political conditions in France."
Fiat Chrysler signaled at the time that the French state would have to give up its sway over Renault for a resumption of talks, people with knowledge of the situation said at the time.
Tavares said earlier this year that PSA would be returning to the U.S., which the brand exited in 1991. Tavares said the brand will begin shipping vehicles to North America from Europe and China in 2026.
Fiat Chrysler is seen as a laggard in new technologies such as electrification and autonomy, which are expected to cost automakers billions of dollars over the next decade.
The company has sought to secure its future with a larger partner for several years, dating back to late CEO Sergio Marchionne’s failed courtship of General Motors. After being rebuffed by GM in 2015, rumors of talks with other automakers have swirled with varying intensity.
Reuters contributed to this report