The merger would create the world's second-biggest truck maker and strengthen the two companies' position in the increasingly competitive European car market.
The merged company would employ more than 100,000 people and build more than 2 million cars a year. The move would also pave the way for the privatisation of Renault, which has been in state hands since just after the Second World War.
The two groups have had a 20 per cent cross-shareholding since 1990, and they have been stepping up their technical and marketing collaboration since then. They would continue to produce distinct ranges of cars but share components and development costs. The replacements for the Renault Safrane and Volvo 850 executive cars, due to be launched towards the end of this decade, will share mechanical parts, while the replacement for the Renault 21, which goes on sale next April, will have a Volvo engine.
The obstacle to a full merger - a 25 per cent limit on foreign stakes in French state-owned companies - has just been removed, and Gerard Longuet, the French Industry Minister, has made it clear he wants the merger to be completed as quickly as possible. He said last month it would be completed before the end of August. However, detailed negotiations have taken longer than expected, and an announcement could yet be delayed until the start of the Frankfurt motor show, on 7 September.