PSA Group, the French owner of Peugeot, is exploring a merger with its US-Italian rival Fiat Chrysler, it has confirmed.
A deal between the two carmakers would create a business with a combined market value of nearly $50bn (£39.9bn).
This is Fiat Chrysler’s second attempt at a merger this year after it pulled out of an agreement with Renault in June.
Fiat Chrysler shares jumped 7.5% on Wall Street.
The potential merger would face significant political and financial hurdles.
Discussions remain in the early stages and there is no guarantee of a final deal.