Fiat Chrysler and French PSA, the owner Peugeot, have agreed on a merger that would form one of the largest carmakers in the global industry. The two companies are estimated to create a combined output of revenues of €170bn. The deal is expected to be finalised in the next 12-15 months.

The deal is expected to reshape the automotive industry amidst an era of change, with increasing spending demanded to adapt to a shift to electric vehicles and self-driving systems.

The two companies announced they had signed a binding “combination agreement” for a tie-up that would result in an “industry leader” with greater scale and ability to invest in new technologies. The shareholders of each group would have 50 per cent ownership in the newly established company.