A merger of PSA Group and FCA looks set to create the world's 4th largest vehicle manufacturing group with combined annual sale of nearly nine million units.

The companies have announced they are on the path to create a new group owned 50% by PSA Group shareholders and 50% by FCA shareholders, which will capitalise on FCA's strength in North America and Latin America and PSA Group's strength in Europe.

"The combination would unite the group's respective brand strengths across luxury, premium, mainstream passenger car, SUV and trucks and light commercial vehicles, making them stronger together," said their joint statement.

FCA's brands include Fiat, Chrysler, Jeep, Alfa Romeo, Abarth, Ram, Lancia, Ferrari and Maserati and PSA Group's brands include Peugeot, Citroen, DS Automobiles, Vauxhall and Opel.

Both companies "have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger," said the statement.

The plan to combine the PSA Group and FCA businesses follows intensive discussions between the senior managements of the two companies.

Both share the conviction that there is compelling logic for a decisive move that would create a single business under a Dutch parent company, listed on the Paris, Milan and New York stock markets, with the scale, capabilities and resources to capture successfully the opportunities and manage effectively the challenges of the new era in mobility.

It expects to achieve annual savings of 3.7 billion euros without closing any assembly plants.

Carlos Tavares, head of PSA Group, would be chief executive of the whole business on an initial five year contract.

It would continue "to maintain significant presences in the current operating head-office locations" in France, Italy and the US, the statement said.

"The extended portfolio would cover all market segments with iconic brands and strong products based on rationalized platforms and optimization of investments."

Mike Manley, FCA chief executive, said, "I'm delighted by the opportunity to work with Carlos and his team on this potentially industry-changing combination. We have a long history of successful cooperation with Groupe PSA and I am convinced that together with our great people we can create a world class global mobility company."

Tavares said: “This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity. I’m pleased with the work already done with Mike and will be very happy to work with him to build a great company together.”