The combined business would be 50% owned by Fiat shareholders and 50% by Renault stockholders.
Overall, Renault deliveries fell 5.6% to 908 348 vehicles in the first quarter, while Fiat Chrysler sales were down 14% to 1.04 million cars and light trucks.
"The market will be careful with these synergy numbers as much has been promised before and there isn't a single merger of equals that has ever succeeded in autos", Evercore ISI analyst Arndt Ellinghorst said.
The joint annual sales of 8.7 million units would make the merged entity the third largest manufacturer in the world, with a combined presence wider than that of either carmaker.
The merger requires approval by boards of both automakers, CNBC reported.
A deal would save $7.5 billion for the merged companies each year by sharing research, purchasing costs and manufacturing and tooling efficiencies, Fiat Chrysler said. The combination of all four companies would make it the largest vehicle company in the world with more than 15,000,000 in annual new auto sales.
The plan has political backing from the French state, which is Renault's most powerful shareholder.
Over the weekend, rumors began surfacing of a possible tie-up between the Italo-American company and the French.
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Both Fiat and Renault went through dramatic changes at the top previous year after former Fiat chief, Sergio Marchionne, died and Carlos Ghosn, who was chairperson of the Franco-Japanese alliance, was arrested in Tokyo on charges of financial crimes.
In a separate statement, Renault confirmed receipt of the FCA proposal and notes that after reviewing the offer, its board will "study with interest" the merger's benefit with regards to the existing Renault-Nissan Alliance.
The proposed deal between Fiat and Renault comes against a backdrop of an industry undergoing one of the biggest tectonic shifts in its history. The automaker also sees the potential of approximately $5.6 billion in cost savings, in addition to those existing savings realized by Renault through its alliance with Nissan and Mitsubishi.
At the time, Renault-Nissan was considered the second-best fit for Fiat after General Motors, according to people familiar with the plan.
"Every three to four years we are hoping that a new model will help us turn the corner. but then after a boom we are back in furloughs or on solidarity contracts and our salary goes down by a third", said Giovanna Treccalli, a 54-year-old assembly line worker who has been with Fiat since 1987. Automakers are also under pressure from regulators, particularly in Europe and China, to come up with electric vehicles so they can meet tougher climate change regulations and after scandals over the amount of pollutants engines truly emit. "We need giants to be built in Europe".
The merger idea is the biggest corporate move so far by Fiat Chrysler CEO Mike Manley, who took his position after the unexpected death past year of the charismatic leader Sergio Marchionne.
"Renault now has its hands full with its alliance partner Nissan; it's unthinkable that this partnership will be abandoned", Frank Schwope, an auto industry expert at German commercial bank NordLB, said in a research note.
Any deal must safeguard Renault's alliance with Nissan, the official added.
Ghosn's removal from the helm of the Franco-Japanese partnership brought simmering tensions to the surface, with Nissan so far rejecting a French push for a merger.