Together, the two companies may seize too much control over the small vans market and harm competition across the EU, regulators say. The Fiat Chrysler-PSA merger would create the fourth-biggest car maker in the world.
Regulators are concerned that the merger may damage competition in 14 EU countries and Britain.
The European Commission said it was particularly worried about the merger yielding a high market share in small vans. Such vans are technically easy to manufacture, but are sold at good prices.
The Commission said that during a preliminary review of the deal, the two carmakers had declined to offer concessions on its concerns.
Peugeot and Fiat Chrysler have previously said the 50-50 merger will save them €3.7 billion ($4.15 billion) in overall annual expenditure and allow them to work on creating more sustainable vehicles.
The merger would create the fourth largest car empire in the world. The plans were announced in October 2019, after an attempted merger between Fiat Chrysler and Renault fell apart over job loss concerns.
aw/msh (Reuters, AFP) (DW)