Fiat chief Sergio Marchionne on Tuesday headed to Detroit for meetings with Chrysler on an alliance that may rescue the failing US auto giant from collapse, a company spokesman said.

Marchionne will “probably” also have talks with the US government in Washington, the spokesman told AFP .

The US administration on Monday gave Chrysler 30 days to sign a definitive agreement with Fiat, presented as the only hope for the automaker to return to profitability and a pre-requisite to any further government aid.

A Chrysler spokesman late on Monday announced a “framework agreement” with Fiat, reflecting progress since the two sides presented the broad outlines of a prospective alliance in January.

“It’s one step closer to the definitive agreement,” Chrysler spokesman Shawn Morgan said.

AFP said the announcement sparked an 8.53% surge in Fiat’s share price early Tuesday to EUR5.18 in overall market trading that was up only 0.98%.

The price had plunged more than 9% on Monday amid investor fears of unforeseen risks posed by the tie-up.

Under the preliminary accord signed in January, Fiat would initially take a 35% stake in Chrysler which could rise to as much as 55%.

However, the initial stake has been brought down to 20%, a source told AFP, confirming a report in The Wall Street Journal .

“At first it will be 20% (and) rise gradually to 35%, according to adjustments in Chrysler’s (restructuring) plan,” the source said.

While Fiat would pay nothing, it would provide access to its technology.

The Wall Street Journal said the adjustment was aimed at facilitating negotiations between Chrysler and the US treasury.

Fiat would not be allowed more than a 49% stake in Chrysler until US government loans were repaid, The White House said.

President Barack Obama’s auto task force said on Monday that Chrysler and General Motors had failed to submit adequate restructuring plans under a US$17.4bn (EUR13.2bn ) government bailout agreed late last year.

The government may invest up to $6bn more in Chrysler if the alliance with Fiat succeeds, the task force said.

Golding’s Take on Marchionne and Chrysler