"Following recent reports on a possible business combination between Groupe PSA and FCA Group, Fiat Chrysler Automobiles, confirms there are ongoing discussions aimed at creating one of the world's leading mobility Groups", the company said in a statement.
Global automakers face the prospect of a slowdown in demand coinciding with the most dramatic technology changes in a century.
Sources have told the Wall Street Journal the two parties are discussing an all-share transaction.
Peugeot's chief executive, Carlos Tavares, has been open about PSA's willingness to pursue merger opportunities if they made sense for shareholders. PSA sold 3.9 million cars a year ago.
Verizon Giving A Year Of Disney+ Away For Unlimited Wireless Customers
Disney anticipates it will have an estimated 60 to 90 million global subscribers to its streaming service by 2025, CNN reports. Stock in Netflix, which has slipped about 15% in 2019 to date, fell to about $270 a share.
If Fiat Chrysler plays its cards right, we could be seeing French cars on American shores sooner rather than later. In April Tavares said he would consider buying Britain's largest carmaker, Jaguar Land Rover, but its Indian owner, Tata, said the company was not for sale.
Evercore analyst Arndt Ellinghorst in a note on Tuesday said a combination of Fiat Chrysler and Peugeot "should ignite more rational industry behavior around allocation of capital and this particular merger makes materially more sense than a potential FCA-Renault merger".
John Elkann, Fiat Chrysler's chairman and the head of Italy's Agnelli industrial dynasty which controls the business, would retain the same position at the new company.
Tavares has moved aggressively to expand Peugeot, acquiring German auto brand Opel from General Motors Co for $2.6 billion in 2017.