By Liz Hoffman, Christina Rogers and Cara Lombardo 

Fiat Chrysler Automobiles NV and Renault SA are in talks for a wide-ranging tie-up that could include joining large portions of their businesses, according to people familiar with the matter, a move that could reshape the European auto industry.

While many details and the financial contours of any transaction couldn't be learned, it could be substantial: Fiat Chrysler, which trades in New York and Milan, has a market value of $20 billion. Paris-listed Renault is worth about $17 billion.

There is no guarantee the parties will reach an agreement, but if they do so it could come soon, some of the people said.

That Renault and Fiat Chrysler, considered crown jewels in France and Italy respectively, would seek a major overhaul shows the challenges facing global auto makers. As demand slows for new cars, the advantages of global scale are starting to outweigh the national pride and other factors that have kept homegrown car makers across Europe independent.

The auto makers have been discussing joining vehicle platforms and engineering resources, talks that have gained traction in recent weeks, one of the people said.

One possible outcome, this person said: Fiat Chrysler ultimately joining a three-way alliance between Renault, Nissan Motor Co. and Mitsubishi Motors Corp.

That could help solve tensions between Renault and Nissan, its Japanese partner in a two-decade-old alliance that was intended to trim costs and help both companies grow outside their home markets. But the relationship has grown increasingly uneasy, especially after the arrest last year in Tokyo of then-Renault Chairman Carlos Ghosn, who had been pushing for the two companies to merge outright.

Talks between Fiat Chrysler and Renault accelerated after Mr. Ghosn's arrest, one of the people said, as Italian executives bet his absence would bend the French car maker to a more encompassing deal, rather than a straight merger with Nissan. Mr. Ghosn, who was first arrested in November, has denied the allegations against him, which include financial misconduct and disclosure violations.

Fiat also held merger talks with another French car maker, PSA Group, people familiar with those discussions said.

The Fiat Chrysler-Renault talks were earlier reported by the Financial Times.

Car companies are facing an expected downturn in the world's top auto markets and are under pressure to invest in expensive new technologies such as electric and self-driving cars.

After years of steady growth, auto sales in the U.S. and China are slowing, denting earnings across the sector and prompting more car manufacturers to find partners to share the costs of developing new models.

Former Fiat Chrysler Chief Executive Sergio Marchionne, who died unexpectedly last year, had long pushed for a merger with another car company, including making an unsuccessful appeal to General Motors Co. His successor, Mike Manley, has said more recently the auto maker is strong enough to stand on its own but remains open to potential opportunities.

In the U.S., Fiat Chrysler is best known as the owner as the maker of Jeeps and Rams. Fiat SpA, Italy's oldest and best-known company, acquired a stake in Chrysler in 2009 following a U.S. bankruptcy reorganization and a merger in 2014 created the company in its current form.

Exor NV, the Agnelli-Elkann family holding company, owns 29% of Fiat Chrysler. John Elkann, the heir to the Italian industrialists, has been Fiat Chrysler's chairman since 2010.

--Nick Kostov, Eric Sylvers and Ben Dummett contributed to this article.

Write to Liz Hoffman at liz.hoffman@wsj.com, Christina Rogers at christina.rogers@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

May 25, 2019 14:51 ET (18:51 GMT)