According to an Italian media report this morning a detailed plan for a merger between Fiat and PSA Peugeot-Citroën has been drawn up, and is now being considered by Fiat Group CEO Sergio Marchionne who will decide whether to present it to the Fiat board. Italian financial newspaper Il Sole 24 Ore today, citing unnamed financial sources, claims that the proposal has been drawn up by Italian investment bank Mediobanca along with a strategic consultant and that Marchionne is now considering the implications of its contents and when - or if - to present it to the Fiat board.

Speculation that Fiat could tie-up with the leading French car making group first came on 14th December last year in the Milano Finanza newspaper which cited unnamed sources close to Italian Premier Silvio Berlusconi's office. It claimed that Berlusconi and the French President Nicolas Sarkozy had already discussed the idea.

That news came as the global recession was hitting all carmakers hard and just a matter of days after Fiat CEO Sergio Marchionne stated that Fiat would need a new partner to help it survive the global economic downturn. He told Automotive News Europe in an interview that "you need at least 5.5 million to 6 million cars [per year] to have a chance of making money. Fiat is not even halfway there, and we are not alone in this. So we need to aggregate, one way or another."

A combined PSA and Fiat would have nearly equal sales in Europe to Germany's giant VW Group. PSA is presently Europe's second biggest car making group. A resulting company would also become the fourth-biggest manufacturer in the world, behind Japan's Toyota, and the American duo, General Motors and Ford, and it would be roughly equal in output to VW Group (which includes the VW, Audi, Skoda, SEAT, Lamborghini and Bugatti brands) and the Renault-Nissan alliance (which also includes Renault's 'low-cost' Dacia brand). This is excluding any volumes that would be generated from the potential deal between Fiat and US carmaker Chrysler LLC that is currently on the table and which was announced in January following the outbreak of speculation about the potential Fiat-PSA merger.

Fiat and PSA already have close ties through several long term strategic alliances. In the Light Commercial Vehicle sector a two decade old joint venture produces a range of commercial vehicles that are sold and badged by Fiat, Peugeot and Citroën, built at factories located in France, Italy and Turkey; for Fiat these cover the Fiorino, Scudo and Ducato vans, while a similar MPV alliance includes the large Fiat Ulysse and Lancia Phedra 'minivans' which are also badged and sold by Peugeot and Citroën.

PSA has so far in public at least expressed very little enthusiasm for any merger so, preferring instead to explore targeted strategic alliances as the way forward in a similar manner to Fiat, which already has co-operations with a raft of carmakers worldwide including Tata, Suzuki, Ford and Sollers as well as PSA. The French firm has recently entered into a new manufacturing alliance with Japanese 4x4 maker Mitsubishi.

The Italian stock market liked this morning's news about a potential PSA merger; in pre-trading Fiat shares were up 5 percent and in early trading on the Milan bourse they up by 7 percent to 4.64 euro per share with the overall market was broadly up also. By 11 am the shares had given up some of the ground they had made and were up 3.23 percent at 4.47 euro. Trading accounted for 96 million euros by 11 am.