"PSA is getting out of both the factory and the A segment business, as it is offered today, and on which manufacturers have arguably lost the most money in Europe," one of the sources familiar with the matter said.
PSA declined to comment on the future of the two minicars. It said it was reviewing which products would best meet customer expectations in the A segment and cope with European carbon emissions targets.
"This means a reflection with fresh and disruptive ideas," a spokesman for the company said.
The European Commission is planning to tighten its emissions limits for cars under new proposals designed to cut the bloc's greenhouse gas output further by 2030.
PSA's merger project with FCA has also increased the options available, two of the sources said, as the FCA has no intention of abandoning its small best-selling Panda and 500 models. Both already have hybrid versions and the 500 is also available in full electric mode.
"Current projects could be replaced by new ones made possible by the merger with FCA", another source said. "The merger is turning all the cards around, especially when you consider that the A segment, from the very first 500 to the Panda, is inseparable from Fiat history."
FCA declined to comment.
PSA and FCA aim to finalize their merger in the first quarter next year to create a new company called Stellantis, which will be the fourth-biggest automaker in the world.
The European market for frugal minicars has been shrinking for several years. Its share fell to 7.4 percent last year from 10.9 percent in 2010 while slightly larger and more profitable vehicles in the B segment maintained their share at 30 percent, IHS Markit data shows.
As part of a profitability drive, PSA has already discontinued production of two smaller Opel models - the Adam and Karl models - as part of an overhaul of the German brand.
Despite their miniature engines and light weight, which theoretically made them suitable for cities, automakers have struggled to make their smallest cars profitable.
Some automakers, such as Daimler which makes the Smart car, or Renault with its Twingo, have been forced to invest heavily in all-electric powertrains to improve their emissions profile in Europe.
PSA also considered electrification as an option for its A segment cars but eventually abandoned the plan, fearing it would remain unprofitable, one of the sources said.
Several alternatives are being studied, including offering more low-cost electric cars in the style of the new Citroen Ami, which is assembled in Morocco, or vehicles in the B segment with a more accessible price, the source said.
While talks about which architecture A segment Stellantis cars will use remain open, PSA is keen to retain a technological lead in the B or small segment, which includes models such as its popular Peugeot 208 and Opel Corsa.
Earlier this year, FCA sent a letter to its suppliers telling them the company's next three B segment cars would be based on PSA's modular CMP platform and produced internally under license.
PSA CEO Carlos Tavares, who will head Stellantis, has said repeatedly that he saw no need to scrap any brands following the merger.