Fiat Chrysler Automobiles (FCAU  ) and PSA-owned Peugeot have announced a potential merger that would eventually amount to approximately $48 billion and place the new auto behemoth as the world's fourth largest by volume.

As per the deal, shareholders associated with either automaker would own a total of 50% of the merger. However, shareholders of Fiat Chrysler will be entitled to a one-time dividend worth $6.1 billion also. A binding agreement will be finalized and released soon.

In terms of leadership, Peugeot Chief Executive Carlos Tavares will serve as the CEO of the new auto behemoth. Meanwhile, John Elkann, Fiat Chrysler chairman and the head of the Agnelli family, which controls the Italian-U.S. auto maker, would also serve as joint CEO.

This merger could be a way by which Fiat Chrysler improves its relationship with the United Auto Workers union, by opting to move most of its tech production to the United States. Note that this could be hindered by the fact that Americans are increasingly buying more SUVs and larger vehicles, contrary to the smaller cars Fiat sells. Thus, either way, the company may end up downsizing.

Jessica Caldwell, Edmunds' executive director of industry analysis, said the planned merger of Fiat Chrysler and France's PSA "isn't really about product or expanding to new markets."

"The electrified, autonomous future everyone is waiting for just isn't feasible without automakers merging and forming strategic alliances to share research and development costs," she continued. "This is a smart move by both Fiat Chrysler and PSA to ensure their companies continue to be viable and relevant as the industry evolves."

Thus, combining both the companies' capabilities, the new entity can take advantage of economies of scale and invest more in productive research and development. The innovation process will be more efficient due to both companies being able to share parts and plans with each other.

The merger may also help the automakers make their entry into China, which is the largest car market in the world: "As a global automaker, you can't ignore China. It's the biggest market in the world, by a very wide margin," says Michelle Krebs, an executive analyst for Autotrader. "It's also the largest market for electric vehicles. So if you're going to be a true global automaker, you need to have strength in China."