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Fiat and Chrysler have entered into a strategic alliance following the decision by the American firm to file for bankruptcy protection.

Chrysler entered discussions with Fiat over a year ago and the deal has been expected for some time.

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Through the agreement, Chrysler says it will now be able to expand its product range and create more environmentally-friendly cars.

Under the alliance, Fiat will hold a 20 per cent stake in Chrysler, the Voluntary Employee Beneficiary Association will own a 55 per cent share, and the US and Canadian governments will own proportionate shares of a 10 per cent stake.

Fiat will be able to increase its ownership stake by an additional 15 per cent in three stages by meeting different criteria:

- 5 per cent for bringing a 40mpg platform to Chrysler that will be produced in the US

- 5 per cent for producing a fuel-efficient engine family for Chrysler that will be made in the US

- 5 per cent for providing Chrysler access to its global distribution network to help export Chryslers

Bob Nardelli, Chairman and CEO of Chrysler, said: "This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages.

“It enables us to better serve our customers and dealers with a broader and more competitive line-up of environmentally-friendly, fuel-efficient high-quality vehicles. Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution."

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