Merging with another large automaker has been FCA's plan for a while.
Fiat Chrysler CEO Mike Manley would have a senior executive role and work closely with Mr Tavares. According to the agreed deal between the two parties, the merger between PSA and FCA will be done under a Dutch parent company, which will be listed on New York Stock Exchange, Borsa Italiana (Milan), and Euronext (Paris).
Fiat Chrysler, the Italian-US business behind Jeep, Alfa Romeo, and Maserati, has been looking for a big tie-up for years, believing that consolidation in the global industry is needed to cuts costs and overcapacity, and fund investment in electric vehicles. Reports of the merger talks first emerged late on Tuesday. Earlier this year, we learned that FCA had entered into an agreement with Tesla, where it would pay the USA automaker "hundreds of millions" of dollars in order to count the American EVs as part of its European fleet.
It is expected that 80 per cent of the synergies would be reached after four years, with the total one-time cost of achieving them estimated to be €2.8 billion ($A4.5b). Combined, the two companies sold 8.7 million cars previous year, topping General Motors and coming behind of Volkswagen and Toyota.
Last May, FCA proposed a similar merger with Renault, but the French company turned it down.
Fiat Chrysler shares spiked on the news.
Le Maire also wants the new group to help create a European electric battery industry, something the French government has pushed for to ensure that European carmakers can reduce their dependence on USA and Asian battery technology.
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Manley called it "an industry-changing combination", and noted the long history of cooperation with Peugeot in industrial vehicles in Europe. This was thought to be hampered by Renault's alliance with Nissan and the French government.
Ahead of a meeting in 2018 with British unions to discuss job cuts at a Vauxhall plant inherited from Opel, Tavares told reporters in Detroit that United Kingdom production costs were twice those of Peugeot plants in France.
Both brands would increase their global reach since FCA is strong in North and South America and Groupe PSA has a foothold in Europe.
Cassidy says the minivan plant is set up to build multiple vehicles and hopes to gain a new product to protect jobs.
If the joint-venture comes to light, the chairman of the board of directors of PSA, Carlos Tavares, would become managing director of the new entity.
It would continue "to maintain significant presences in the current operating head-office locations" in France, Italy and the USA, the statement said. Both have strong shareholder participation by the founding families - the Peugeots in France and the heirs to the Agnelli family in Italy, represented by Elkann. Peugeot would similarly distribute to its shareholders its 46-percent in Faurecia.