"There has been talk of consolidation for a long time," said Michelle Krebs, a senior analyst at Autotrader, who noted that form Fiat Chrysler CEO Sergio Marchionne was a big proponent. "It's not surprising it comes now."
Carmakers need to focus on the future of transportation. But the first major problem is flagging sales.
"We are in a post-peak era where sales have hit records then come down a bit," Krebs said.
Meanwhile, the amount of money that car companies need for earmark for research and development is ballooning, especially as competition with Silicon Valley heats up.
Still others are moving to deepen partnerships and alliances so they can spread out development costs.
A merger between Fiat Chrysler and Renault would take such cooperation a step further. The companies had been discussing ways to team up on new products and tech, but Fiat Chrysler argued that a merger would be the best.
Fiat Chrysler owns brands such as Jeep and Ram that have a lot of growth potential abroad, especially in the Middle East and Africa where Renault is strong, Krebs said.
Renault, on the other hand, does not have a significant presence in North America, where Fiat Chrysler is a major player.
Additionally, Renault is a leader in electric vehicles, while Fiat Chrysler has lagged behind. The Italian-American company said a merger with Renault would produce annual cost savings of more than € 5 trillion ($ 5.6 billion).
The French carmaker, which sells fewer cars than Nissan, had been pushing for the companies to merge but faced pushback.
"The biggest mystery in all of this is where Nissan fits," Krebs said.
Auto mergers don't always work out, however. Fiat Chrysler would know: its merger with Daimler in 1998 ended less than a decade later, partly because of differences in corporate culture.