Fiat Chrysler and Renault are in talks on a comprehensive global tie-up that could address some of the main weaknesses of both carmakers, two sources with knowledge of the discussions told Reuters on Saturday.
FCA and Renault have a combined market capitalization approaching 33 billion euros ($37 billion) and total global sales of 8.7 million vehicles. Besides bringing greater scale, a tie-up could help patch flaws on both sides.
FCA has a highly profitable North American RAM trucks business and Jeep brand but has been losing money in Europe, where it may also struggle to keep pace with looming carbon dioxide emissions curbs.
Renault, by contrast, is an electric-car pioneer with relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no U.S. business.
Any tie-up would likely face political and workforce hurdles, particularly in Italy. Most of FCA's European plants are running below 50 percent capacity.
It was unclear whether the FCA-Renault deal talks would conclude successfully, the sources said.
The plan under consideration could involve some transfer of equity, one source said. "This isn't just another partnership - it's more than that."
Both carmakers have also been exploring tie-ups with other partners.
While FCA has recently revived discussions with PSA Group - which have been recurrent over the years - Renault is seeking a merger with Nissan, its partner in a troubled 20-year-old alliance.
A tie-up between FCA and Renault would not preclude a consolidation of the alliance with Nissan, one of the sources said.
The Renault-Nissan partnership, underpinned by crossed shareholdings, has been strained by the scandal surrounding former chairman Carlos Ghosn, who was ousted in the wake of a Nissan internal investigation.
A tie-up that included Nissan would vault the ensemble to the rank of global No.1 carmaker with 13.8 million annual sales. It would also maintain a foothold in China, where both FCA and Renault are marginal players.
The discussions follow weakening U.S. auto demand that has prompted cutbacks at several carmakers. FCA reported a 29 percent decline in first-quarter operating profit as sales and margins weakened in its North American profit centre. Sales dropped 5 percent to 24.48 billion euros.
Also read: US regulator to probe Mahindra over complaint by Fiat Chrysler