Fiat Chrysler Automobiles FCAU -1.24% NV and Peugeot maker PSA Group of France said they were in merger talks, discussions that could lead to the creation of a roughly $46 billion trans-Atlantic auto giant that would rank as the world’s fourth largest by volume.

The talks come as the world’s largest auto makers try to restructure their businesses as cost pressures mount and the global car market slows down after a period of heady growth.

Both auto makers separately confirmed talks after The Wall Street Journal reported them first on Tuesday. Neither company provided further details.

“There are ongoing discussions aimed at creating one of the world’s leading mobility groups,” Fiat Chrysler said in a short statement.

Auto-industry consolidation is a perennial theme, especially in Europe, where a crowded marketplace and stringent tailpipe-emissions rules make it difficult to earn money. Auto makers are also under intense pressure to innovate with electric vehicles and self-driving technology, forcing collaboration between traditional rivals to share the investment load.

But in practice, consolidation has been far tougher to achieve because political concerns and power struggles often derail potential deals.

A possibility PSA and Fiat Chrysler are discussing, said one of the people familiar with the talks, is an all-share merger of equals. Peugeot Chief Executive Carlos Tavares would lead the combined auto maker as its CEO, while John Elkann, Fiat Chrysler chairman and the head of the Agnelli family, which controls the Italian-U. S. auto maker, would assume the same role at the new company, this person said.

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Talks are fluid, one of these people said, and other options or terms could be considered. There is no guarantee that any final agreement will be reached.

The proposed combination comes months after Fiat Chrysler dropped an earlier offer to merge with Peugeot rival Renault SA RNO -2.35% of France. That deal fell apart after Fiat Chrysler failed to win the full backing of the French government, a big Renault shareholder, and Renault’s alliance partner Nissan Motor Co.

While Fiat Chrysler had earlier this year explored a potential tie-up with Peugeot, as previously reported by The Wall Street Journal, Mr. Elkann favored a deal with Renault, believing it delivered more synergies and a better geographic fit, people familiar with his thinking said.

After talks fell apart, Mr. Elkann left the door open for discussions to resume. But those prospects have dimmed in recent weeks with Renault and Nissan still trying to hash out a deal to restructure their global alliance and Renault recently firing its CEO. The French car maker is now in a search for a successor.

Meanwhile, pressure is mounting on Mr. Elkann, who also leads Exor NV, the holding company through which the Agnelli family holds a 29% stake in Fiat Chrysler.

Under Mr. Elkann, Exor has sought to diversify in recent years, aiming to trim reliance on Fiat Chrysler. Exor bought a reinsurance company in 2015 and owns 23% of luxury-sports-car maker Ferrari NV, among other investments.

Exor called a board meeting for Wednesday, according to a person familiar with the plans. PSA has also convened an extraordinary board meeting near Paris on Wednesday, according to people familiar with the matter.

Representatives for Fiat Chrysler, Peugeot and the Agnelli family declined to comment. Both Peugeot and Fiat Chrysler are major forces in Europe, so any proposed combination could face regulatory challenges.

Peugeot’s Chinese and French ownership stakes would likely draw attention in the U.S., where the Committee on Foreign Investment in the United States has looked closely at Chinese-related deal making involving U.S. companies and technology. The Trump administration has focused on U.S. manufacturing, including the auto industry—though the modest 12.2% stake that China’s state-run Dongfeng Motor Group Co. holds in Peugeot might not cause much alarm.

A combination, if achieved, would lift Peugeot and Fiat Chrysler in the auto industry’s global standing, offering them added scale and potential cost-cutting opportunities. The two companies together sold 8.7 million cars last year, which would have ranked their combination at No. 4, just ahead of General Motors Co. ’s 8.4 million vehicles sold.

There would still be some distance between a combined Fiat Chrysler-Peugeot and the world’s top three auto makers.

Volkswagen AG sold 10.8 million vehicles last year, about the same as the alliance between Renault, Nissan and Mitsubishi Motors Co. No. 3 Toyota Motor Corp. tallied 10.6 million vehicles.

Peugeot’s Mr. Tavares has been eager to expand in the U.S., where the French brand has been absent for almost three decades. He has outlined plans to eventually reintroduce the nameplate in the U.S., but a tie-up with Fiat Chrysler would bring with it wide access to the U.S. market. Fiat Chrysler dealers selling the popular Jeep and Ram brands could potentially offer Peugeot models as well.

As CEO of the combined auto maker, Mr. Tavares would bring a proven record as an operator. In 2017, he led the company in its acquisition of GM’s then-money-losing Opel division and has since restored it to profitability.

A deal would give Fiat Chrysler more exposure to Europe, where Peugeot sold 2.5 million vehicles last year, compared with one million for Fiat Chrysler. The Italian-American company, however, has tried in recent years to lessen its dependence on the Continent. A combined Fiat Chrysler-Peugeot would sell almost as many vehicles in Europe as Volkswagen, which leads the market with a 24% share.

The go-it-alone strategy would also be risky for Fiat Chrysler, which is struggling to absorb the higher costs of meeting Europe’s emissions requirements and invest in new technologies, such as electric and self-driving cars. Already, the Italian-American car company is facing stiff fines for failing to meet regulatory requirements and is heavily reliant on truck sales in North America at the same time the U.S. car market is cooling.

—Eric Sylvers

contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com, Nick Kostov at Nick.Kostov@wsj.com and Christina Rogers at christina.rogers@wsj.com