Fiat Chrysler confirms talks with French auto giant Peugeot

The new generation electric Peugeot e-208 is on display at a plant in Trnava Slovakia in September

The new generation electric Peugeot e-208 is on display at a plant in Trnava Slovakia in September

"Peugeot could potentially leverage the network of Fiat-Chrysler to create a presence in the USA, and Fiat Chrysler would achieve greater exposure and scale in Europe, benefitting from PSA's tech to tackle CO2", he added.

Two years after it bought Vauxhall and Opel from General Motors, PSA Group has confirmed it is exploring a merger with Fiat Chrysler Automobiles.

Sources have told the Wall Street Journal the two parties are discussing an all-share transaction. Shares in PSA rose by 5%, while shares in Renault fell.

"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.

Merging the two manufacturers would create an industry powerhouse that sold 8.6m cars past year.

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In April, Robert Peugeot, president of the Peugeot family's holding company, said a deal with Fiat was an option.

However, if the two companies do combine, PSA chief executive Carlos Tavares is expected to lead the enlarged group.

Fiat Chrysler has always been looking for a partner to help shoulder investments in the capital-heavy industry. Reports indicated that FCA originally rebuffed PSA's proposals for a merger because it didn't solve Fiat's cash-crunch in a weakening European market and exposed both automakers to deepening manufacturing and laborer deficits in Italy and France. The Chinese presence might trigger doubts in the United States over a potential merger, as trade tensions between Washington and Beijing remain high.

The analysts say this will help FCA with much needed smaller cars, more fuel efficient for the European markets and will help PSA here in the USA with shared profits and put it into the pickup and SUV market. "The focus will be Europe", he said.

"FCA confirms there are ongoing discussions aimed at creating one of the world's leading mobility groups" and "FCA has nothing further to add at this time." .

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