Fiat, Chrysler and the automaker's private equity owner, Cerberus Capital Management, on Tuesday said they had signed a non-binding term sheet to establish a global strategic alliance that would see the Italian automaker take a 35% equity stake in the US firm.

As widely reported ahead of the official announcement yesterday, the alliance, which Chrysler said would be "a key element" of its viability plan, would provide the US automaker with access to competitive, fuel-efficient vehicle platforms, powertrain, and components - to be produced at Chrysler manufacturing sites.

Fiat would also provide distribution in key growth markets, as well as substantial cost savings opportunities, a Chrysler statement said. The Italian firm is strong in Europe and South America, especially Brazil, and is also active in other developing markets such as India and South Africa.

Fiat would also provide management services supporting Chrysler's submission of a viability plan to the US Treasury as required under the terms of the recent federal loan agreement.

"Fiat has been very successful in executing its own restructuring over the past several years," Chrysler said.

"The alliance would also allow Fiat Group and Chrysler to take advantage of each other's distribution networks and to optimise fully their respective manufacturing footprint and global supplier base."

The proposed alliance would be consistent with the terms and conditions of the US Treasury financing to Chrysler and each constituent would be asked to contribute to Chrysler's restructuring effort including: lenders, employees, the UAW, dealers, suppliers and Chrysler Financial.

"Such steps would greatly contribute to Chrysler's long term viability plan," the automaker added. "Completion of the alliance is subject to due diligence and regulatory approvals, including the US Treasury."

Fiat will take a 35% equity interest in return for the group's contribution to the alliance of strategic assets, to include: product and platform sharing, including city and compact segment vehicles, to expand Chrysler's current product portfolio; technology sharing, including fuel efficient and environmentally friendly powertrain technologies; and access to additional markets, including distribution for Chrysler vehicles in markets outside of North America.

"The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future," the statement said.

"This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process," Fiat Group CEO Sergio Marchionne said in a statement.

"The agreement will offer both companies opportunities to gain access to most relevant automotive markets with innovative and environmentally friendly product offering, a field in which Fiat is a recognised world leader while benefitting from additional cost synergies.

"The deal follows a number of targeted alliances and partnerships signed by the Fiat Group with leading carmakers and automotive suppliers over the last five years aimed at supporting the growth and volume aspirations of the partners involved," he added.

"A Chrysler/Fiat partnership is a great fit as it creates the potential for a powerful, new global competitor, offering Chrysler a number of strategic benefits, including access to products that compliment our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing," said Chrysler chairman and CEO Bob Nardelli.

"This transaction will enable Chrysler to offer a broader competitive line-up of vehicles for our dealers and customers that meet emissions and fuel efficiency standards, while adhering to conditions of the government loan.

"The partnership would also provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs."

The key United Auto Workers union (UAW) welcomed the announcement.

"This is great news for the UAW Chrysler team and we look forward to supporting and working with them to ensure Chrysler's long term viability," said UAW president Ron Gettelfinger.

Fiat's vice chairman John Elkann had earlier confirmed that Fiat was in partnership talks with Chrysler following reports yesterday of a deal that would see Fiat take a stake in Chrysler.

"That we are talking is not a mystery," he told Reuters on the sidelines of a business event, Reuters reported.

Fiat's shares had been suspended from trade on Tuesday pending release of the statement.

Marchionne recently remarked that Fiat might be too small to survive the downturn in the auto industry globally and that he believed industry-wide consolidation into bigger groups was inevitable.

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