Italy's Fiat and Chrysler of the United States have signed a preliminary, non-binding agreement to create a global partnership in the production and distribution of automobiles and other motor vehicles.
A formal accord will be signed sometime in April once both sides have approved the terms, Chrysler said.
The non-cash accord calls for Fiat to take a 35% stake in the Number Three American carmaker in exchange for Fiat's platforms for its fuel-efficient, small and medium-sized compact cars, which will fill a gap in Chrysler's range of models.
Chrysler confirmed that this will allow it to demonstrate to the US Treasury that it is meeting the conditions set to receive further federal bailout funds necessary for its restructuring and survival.
The US automaker has already received $4 billion dollars on the condition that it shift production away from fuel-guzzling vehicles and slash production and operating costs.
Fiat CEO Sergio Marchionne said the accord was a ''milestone'' for the troubled automobile sector which ''confirms the determination and commitment of Fiat and Chrysler to play a significant role'' in the global market.
''The accord will allow both companies access to important markets with products which are innovative and environmentally friendly, an area where Fiat is a recognised world leader, while generating significant cost savings,'' he added.
Chrysler Chairman and CEO Bob Nardelli said that ''a partnership between Chrysler and Fiat is an ideal combination which has the potential of creating a new, major player on a global level''.
''It will give Chrysler a number of strategic benefits including access to products which complete our own range, access to a distribution network outside North America and savings in research, development, acquisitions, production, marketing and sales,'' he added.
For Fiat Chairman Luca Cordero di Montezemolo, a global partnership with Chrysler ''has great potential. It is positive for Fiat because it means selling technologies which cost significant investment and finally opens a market (the US) which is very important for us''.
Fiat Deputy Chairman John Elkann said that in the future the Italian automaker may increase its stake in Chrysler.
According to press reports, Fiat has an option to up its share to as much as 55%.
It is still unclear what Germany's Daimler, Chrysler's previous owner which retains a 19.9% stake in the company, intends to do once Fiat become a partner.
Daimler is the maker of the Mercedes-Benz.
Chrysler's current owner is the private American equity investment firm Cerberus Capital Management.
An alliance with Chrysler will give Fiat access to Chrysler's assembly plants as well as its sales and service networks, all necessary for the Italian automaker's goal of bringing Alfa Romeo back to the US market and introducing its popular new Fiat 500 city car there, both of which need to be produced in the US to be profitable.
Fiat stopped exporting its marque to the US in 1983 while Alfa Romeo exports stopped in 1995.
Trading of Fiat shares was suspended Tuesday morning ahead of a company statement on the alliance but when the stock returned to the floor it shot up by over 5.5% in heavy trading.
According to the Wall Street Journal, an alliance will help ''both firms to weather an economic downturn threatening the survival of some of the auto industry's biggest companies''.
The WSJ also calculated that an alliance could generate savings in the neighborhood of $3-$4 billion.
CHRYSLER ACCORD FIAT'S LATEST SUCCESS.
From 2000 to early 2005 Fiat was allied with America's Number One automaker General Motors, which acquired a 20% in the Italian company.
In February 2005, GM agreed to pay $2 billion to annul their master agreement for industrial collaboration and annual a put option which could have forced GM to buy all of Fiat Auto, which at the time was racking up record losses.
Fiat used the cash to mount a textbook turnaround, orchestrated by Marchionne who became CEO in 2004, which has allowed it to produce profits for a record 15 consecutive quarters.
This was in part made possible through a series of so-called target alliances which Fiat struck with a variety of industrial partners.
One of the latest was with America's Number Two automaker Ford for the development of a common platform to be shared by the Fiat 500 and a revamped version of the Ka, the city car Ford produces in Europe.
