Fiat to Get 35% Stake in Chrysler

Under the proposed alliance, Fiat would not invest cash in Chrysler but would provide access to its products and platforms.
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Updated from 7:09 a.m. EST

Fiat

and

Chrysler

have signed a nonbinding agreement for a strategic alliance that would give the Italian auto empire a 35% stake in the troubled U.S. carmaker.

The two companies said in a joint statement Tuesday they would share technologies and vehicle platforms. Under the proposed alliance, Fiat would not invest cash in Chrysler but would provide access to its products and platforms.

The statement said Fiat would take an "initial" 35% stake, suggesting the deal may be broadened. It stressed that under the agreement the company is not committing to funding Chrysler in the future.

For Chrysler, based in Auburn Hills, Mich., the deal would mean breaking out of the North American market and gaining access to more competitive products.

"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 complement our current portfolio (and) a distribution network outside North America," said Bob Nardelli, chairman and CEO of Chrysler LLC.

The alliance is subject to a review of company finances and regulatory approvals, including by the U.S. Treasury Department, which last week announced an emergency bridge loan for Chrysler, which analysts say will have difficulty surviving as an independent company.

The news from the companies confirms reports on Tuesday from the

Wall Street Journal

that Fiat could take control of Chrysler's operations.

The

Journal

reported that Fiat would have the option of increasing its stake in Chrysler to as much as 55%.

Fiat wouldn't immediately put cash into Chrysler, the

Journal

reported. Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S., according to people familiar with the matter. Fiat also would provide engine and transmission technology to help Chrysler introduce new, fuel-efficient small cars.

The partnership would help each company compete with larger and more global rivals such as

Toyota

(TM) - Get Report

and

Volkswagen

.

The pact with Fiat could give Chrysler a stronger case as it seeks more loans from the U.S. government, the

Journal

added. Chrysler received $4 billion in emergency loans from the Treasury Department and has seen sales plummet over the past three months. The auto maker needs to show it is viable by March to keep those loans and to qualify for the $3 billion in additional government aid.

The tentative terms Fiat and Chrysler have worked out would call for Chrysler's owners, Cerberus Capital Management and

Daimler

(DAI)

, to retain stakes in the U.S. car maker, people familiar with the discussions said. Cerberus will see its 80.1% stake diluted. It is unclear whether Daimler will want to keep its entire 19.9% stake, the

Journal

reported.

News of the Fiat and Chrysler partnership was previously reported by

Automotive News

, a trade publication.

This article was written by a staff member of TheStreet.com. The Associated Press contributed to this report.