Why Fiat Chrysler and PSA have agreed to merge

Fiat Chrysler chief John Elkann, right, will be chairman of the merged group and the chair of PSA's managing board Carlos Tavares, left, will be CEO (Credit: BILL PUGLIANO, Daniel ROLAND / AFP / dpa)

What factors are driving the consolidation?

The world of cars is going through a profound transition.

Stricter emissions standards are forcing car manufacturers to invest heavily in cleaner technology. They're also facing competition from newcomers such as Google and Apple, which are preparing to enter the automotive industry.

Furthermore, taxi apps like Uber or Kapten, and shared bike programs in cities all over the world are changing people's mobility habits. All these factors, as well as climate change, make consumers think twice before buying a new car.

Car makers have to alter their strategies or face an uncertain fate. Through a merger with PSA, investments in new technologies will become easier.

FSA, and to a lesser extent PSA, is behind its rivals when it comes to the cars of the future, which will very likely be electrical and in a later stage, self-driving.

PSA and Fiat Chrysler's combined European sales are still less than those of German giant VW Group. (Source: European Automobile Manufacturers Association.)

How have the two companies been faring recently?

After a tough period following the financial crisis in Europe and the US, PSA and FCA were able to improve their results. However, both groups need savings to stay competitive.

A merger would save the new group an estimated 3.7 billion euros ($4.1 billion).

The consolidation will also bring a marriage of convenience between two of Europe's best-known business families, the French Peugeots and the Italian Agnellis.

Why this particular combination?

Peugeot is not Fiat's first choice.

This spring, a merger with PSA's rival Renault-Nissan failed after objections from Nissan and the French Government, one of Renault's primary shareholders. Fiat Chrysler was eager to find another group, and in October, it announced the plans with PSA.

On Wednesday, French finance minister Bruno Le Maire called the merger "very good news for France, for Europe and for our car industry." FCA will meet unions on Friday to discuss the deal.

Details of future operations were not disclosed. The two groups complement each other in geographical coverage. PSA is a dominant player in the European market, while FCA is stronger in the Americas.

If the European trust regulators approve the merger, the new group will be operational 12 to 15 months from now. The new headquarters will be in The Netherlands.