Fiat Chrysler shares rose sharply after news of the talks and ended up more than 7.5% in USA trading.
Morningstar senior equity analyst Richard Hilgert said in a note that total volumes of FCA and Peugeot, including China joint venture partners, amounted to 8.7 million vehicles previous year, ranking the eventual combined group fourth behind Volkswagen, Toyota and the Renault/Nissan Alliance, each at more than 10 million units.
The Financial Times has reported that the two firms have been in discussion about the same for several months. 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 Motor Co.
But he said they would insist that inevitable job cuts not be made in France, which will expose Opel, which Peugeot bought in 2017, as the sacrificial lamb in any merger deal. Dongfeng, the Peugeot family, and the French state investment bank BPI France each have 12.23 per cent of capital and 19.5 per cent voting rights in Peugeot.
"FCA needs scale in Europe and PSA has no presence in the U.S., where FCA has market share for sale", said Philippe Houchois, an autos analyst at Jefferies.
Fiat Chrysler shares spiked on the news.
Under one recent proposal, Fiat and PSA have discussed making Tavares CEO of the combined company while John Elkann, scion of the Italian-American automaker's founding Agnelli family, would be chairman, one person said.
A merger could see the Chinese government take a role in a company that includes Chrysler, a USA industry icon. By comparison, General Motors sold 8.4 million vehicles while Ford sold 5.9 million vehicles. That comes on top of Fiat Chrysler owning a joint venture with another Chinese company, GAC.
"The Chinese government doesn't want to have a strong connection with an American company", Dudenhoeffer said, due to economic damage brought by the Trump administration's tariffs. See, the word 'round the campfire is that FCA and PSA are seriously considering a "merger of equals" where the companies combine all stock.