According to WSJ, PSA CEO Carlos Tavares is expected to lead the combined automaker as CEO, while FCA chairman John Elkann will assume the same role with the combined company. They broke off during the attempted merger with Renault before beginning again more recently.
Fiat Chrysler's directors are scheduled to meet later Wednesday to discuss the proposal, the people said.
The company in June withdrew its offer for a €33bn (£28bn) merger with Renault, after the French government, which is Renault's largest shareholder, signalled that it did not support the deal. Fiat Chrysler agreed to pay US electric vehicle maker Tesla Inc for credits to help it comply with European emissions standards until 2022. FCA declined to comment. Shares in PSA rose by 5%, while shares in Renault fell.
The French group has a market capitalization of 22.54 billion euros on the Paris Stock Exchange, while FCA is valued at just over $28 billion on Wall Street and 20.74 billion euros in Milan.
WXYZ cited auto industry analysts who do not expect any merger to affect Chrysler's upcoming contract talks with the United Auto Workers.
Earlier this year FCA pulled out of merger talks with another French carmaker, Renault, blaming the "political conditions in France".
Fiat Chrysler, Peugeot owner PSA in talks to combine, says source
Well, according to a report Tuesday by the Wall Street Journal , we may be coming to the end of that particular movie. However, if the two companies do combine, PSA chief executive Carlos Tavares is expected to lead the enlarged group.
Fiat Chrysler has a larger global footprint than Peugeot, whose focus is on Europe, where it is the second-largest carmaker.
"Timing aside, there is clearly the potential for significant gross synergies [in the] 7 billion euro range over 2021-2023", wrote Arndt Ellinghorst at Evercore. The company is also finding it hard to adopt a go-alone strategy and meet the highly demanding investment requirements in clean emission technologies when its global sales are facing headwinds.
While Exor NV also holds a 23 percent stake in luxury sports auto marque Ferrari, PSA on the other hand sees a 12.2 percent stake in Peugeot by China's state-run Donfeng Motor Group Company.
Other analysts have suggested the French state would be reluctant to be seen as a block to another deal.
FCA has been casting around for someone to merge with for years now since before its legendary leader Sergio Marchionne died in 2018.
Both Fiat Chrysler and Peugeot have been controlled by families since their formation - Peugeot started making cars in 1896 and Fiat three years later - which could contribute to a climate of mutual understanding.