Fiat Chrysler and Peugeot are aiming to be the world's third largest auto producer with their potential merger.

As the auto industry experiences a tumultuous transition, Fiat Chrysler and Peugeot have proposed a merger.

The desire to merge leverages business insight that has been applied in the auto industry before. Namely, consolidating large companies and pooling resources to weather the negative effects of an industry in the midst of a technology transition.

The auto industry is currently facing two challenges. The first being increased regulation from governments as increased greenhouse gas emissions becomes a stronger worry. Additionally, consumers are becoming more reluctant to buy cars, particularly millennials.

Auto-makers are investing heavily in developing electric cars. However, there is no certainty as to whether electric cars will be able to actually serve the main mode of transportation for future car-owners.

If the merger goes through, the two companies combined would become the world’s third largest auto-maker. This merger comes in the wake of declining car sales. Car sales are expected to decrease by 4% by the end of this year. Additionally, the trade war between the U.S. and China is expected to have negative repercussions on auto sales that could last more than five years.

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Economics, Finance and Investing