Chrysler has been given court approval to sell most of its assets to a consortium led by Fiat.
The move last night clears a path for Chrysler to exit bankruptcy protection. Talks to agree the government-backed plan ended after three days of negotiation.
Fiat will now control 20 per cent of Chrysler, the US and Canadian governments will share 12 per cent, and 68 per cent will be owned by a union trust.
Fiat pays nothing for its stake and it has the option to increase its shareholding in Chrysler at a later date, providing it hits specific performance targets.
The Italian firm will benefit from access to the US market while Chrysler will gain expertise in making smaller cars.
The only other alternative to the sale would have been the "immediate liquidation" of Chrysler, said bankruptcy judge Arthur Gonzalez.