Most recently Fiat and PSA teamed up along with Tofas, Fiat's joint venture partner in Turkey, to produce a new range of smaller commercial vehicles and passenger derivatives. The Fiat Fiorino is mirrored by versions from Citroën (top) and Peugeot (bottom).

Just two days after the dramatic alliance with American giant Chrysler was confirmed, Italian media sources claim today that Fiat is also in the process of planning a merger with French car making group PSA Peugeot-Citroën.

Reports surfaced in the media in mid December that Fiat was supposedly talking to PSA about a deeper alliance, but it was concluded by industry watchers that the offer had been rebuffed by the French firm. These reports came just days after Fiat CEO Sergio Marchionne stated that Fiat would need a partner to survive the current economic downturn that has seen car sales plunging.

Italian media reports today have sensationally claimed that the Agnelli family, Fiat's biggest stakeholders with around 30 pct of the share capital, are mulling a capital increase of around 2 billion euros that would be required to retain its stake if Fiat was to merge with PSA. The reports that the Agnelli family, the founders of the industrial group, were looking to raise funds came in La Repubblica newspaper today, though without revealing any sources.

Adding to this theory another Italian publication, this time the Il Sole 24 Ore business daily, also claimed today that Fiat has been working on opening up a 5 billion euro syndicated credit line. According to the paper Italian banks UniCredit SpA and Intesa Sanpaolo are willing to subscribe to around 1-1.5 billion euros.

"Peugeot's market cap is currently 3 billion euros and a complete takeover by Fiat could be financed with the rumoured 5 billion euros loan," UniCredit debt analyst Sven Kreitmair commented in a note he issued this morning. "A combined Fiat-Chrysler-Peugeot group would be the third largest auto company in the world after Toyota and GM with a total production of 8.8 million vehicles [2007 statistic]."

Fiat and PSA have been co-operating together for 30 years in the areas of light commercial vehicles (Fiat Scudo and Ducato) and multi-purpose passenger cars (Fiat Ulysse and Lancia Phedra), with joint factories located in Italy and France. Most recently the two teamed up along with Tofas, Fiat's joint venture partner in Turkey, to produce a new range of smaller commercial vehicles and passenger derivatives (Fiat Fiorino). Much like Fiat, PSA has made targeted alliances a cornerstone of its current strategy, and the French manufacturer was believed to be open to extending these, but not interested in a full merger. PSA currently has joint venture projects with BMW, Ford and Mitsubishi.