Fiat Chrysler Automobiles NV and French carmaker PSA Group are exploring a merger, in a potential deal that would reshape the global auto industry and create a European powerhouse to rival Volkswagen AG, people with knowledge of the matter said.

The two companies are holding talks about a merger, the people said, asking not to be identified because the information is private. Under one recent proposal, Peugeot owner PSA would be the acquiring entity and the French side would have an advantage in terms of board seats, according to one of the people.

A merger of the Italian American automaker and PSA, Europe's second-largest car manufacturer, would create a global company with a current stock-market value of $47 billion — about the same size as Honda Motor Co.