The merger, if it happens, would vault the new company, with annual sales of 8.7 million vehicles, into a position ahead of General Motors and behind only Volkswagen and Toyota, both of which sell about 10.6 million.
The merger could give the combined companies a better chance in the battle among auto manufacturers to build new electric and autonomous vehicles.
Investors in both companies showed their initial approval of the announcement, with Renault’s shares jumping 15 percent in afternoon trading in Paris and Fiat Chrysler stock up more than 10 percent in Milan. The proposal calls for shareholders to split ownership of the new company.
Fiat Chrysler said the deal would save the combined companies $5.6 billion annually with shared payments for research, purchasing and other expenses. The deal does not call for closure of any manufacturing plants but the companies did not say whether any employees would lose their jobs.
The deal would give Fiat access to Renault’s electric car technologies, allowing it to meet the strict carbon dioxide emission standards the European Commission is enacting.
For its part, Renault might be able to gain ground in the U.S. market because of Fiat’s extensive operations in North America.
The French government owns 15 percent of Renault and said it supports the merger, while adding that “the terms of this merger must be supportive of Renault’s economic development, and obviously of Renault’s employees.”