"By providing Chrysler with product platforms, technology cooperation and global distribution, Fiat strengthens Chrysler's ability to preserve US jobs; (and) gives US consumers more choices for environmentally advanced vehicles," Chrysler said in a statement.
The company said the partnership will improve business with dealers and suppliers while at the same time allowing Chrysler "to pay back government loans sooner."
US President Barack Obama said the government will support Chrysler with enough capital of as much as $6 billion to operate normally for 30 days while it works on its "alliance" with Fiat.
Fiat is expected to get a 35 percent stake in Chrysler, thereby providing a lifeline to the American car company in exchange for some $8 billion to $10 billion worth of technology and parts.
Fiat will not be allowed to take a majority stake in Chrysler until US car firm repays the money it owes the American government.
Meanwhile, the government is also giving General Motors financial support to prove the viability of its business for 60 days.
"We cannot and must not, and will not, let our auto industry vanish," Obama was quoted saying in reports.
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