Fiat Chrysler has confirmed it is in talks with PSA Peugeot over a deal that would create a new giant in the car industry valued at around $50bn.
A merger would bring together some of the world’s best-known motoring brands including Jeep, Alfa Romeo, Vauxhall, Citroen, Dodge, Lancia, Maserati, Opel and Peugeot.
The combined firm would be the fourth-largest car maker in the world, headed up by two dynasties with a long history in the industry – Italy’s Agnelli family, and the Peugeot family of France.
Fiat Chrysler said in a statement it “confirms there are ongoing discussions aimed at creating one of the world’s leading mobility groups” with PSA.
Shares in the Italian-American group jumped 7.5 per cent in response to the news, while PSA shares rose 5.7 per cent.
Last month, Fiat Chrysler withdrew a separate $40bn bid for Renault after talks ran into problems surrounding Renault’s alliance with Nissan.
But analysts have pointed out that a tie-up with PSA would be a better fit for Fiat Chrysler.
Fiat Chrysler has a strong presence in the US where it makes the majority of its profits, while PSA is focused on Europe.
New Peugeot cars have not been on sale in America for more than a quarter of a century but the French company has been plotting a return since at least the start of last 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,” Arndt Ellinghorst, an Evercore analyst, told Bloomberg.
It is the latest sign that firms in the industry are looking to consolidate as they grapple with disruption caused by the shift to electric and autonomous vehicles.
Car companies are also among the hardest hit by a global economic slowdown and rising trade tariffs.
In August, Beijing announced it would reinstate earlier tariffs on US cars and car parts of between 5 and 25 per cent.