Fiat has signed a memorandum of understanding with AvtoVAZ to cooperate to develop vehicles, engines and components.

Details of the cooperation are still being worked out. A final agreement is expected to be signed over the coming months.

Fiat already has a joint venture in Russia with Severstal Auto. That is due to start producing Fiat cars and commercial vehicles next year and will not be affected by any agreement with AvtoVAZ. 

Earlier this month Fiat's CEO Sergio Marchionne said that he expected at least one new alliance to be announced by the end of this year. This is part of the company's new strategy to form new alliances. He also confirmed that Fiat has been in contact with Daimler about being a possible partner for the next generation of A-Class and B-Class cars.

AvtoVAZ, Russia's largest vehicle manufacturer, has been losing share as competitive new models have entered the market. The company has a failing alliance with GM, and has been seeking alternative foreign partners, holding talks with Magna, Renault, Fiat and Porsche.

Last month the newly appointed president of AvtoVAZ, Boris Alyoshin, said he believed his company will form an alliance with the two other Russian vehicle manufactures, namely GAZ and KamAZ. It has also been reported that AvtoVAZ is seeking a strategic investor amongst Russian steel companies.