Fiat will receive equity in Chrysler in exchange for investments in retooling a Chrysler plant to make Fiat models for the US market. Fiat will take a 35 percent equity stake in Chrysler by the middle of the year with the option to raise it to 55 percent.

Fiat and Chrysler have confirmed that a merger deal has been reached. Details of the deal were put out in a press release by the two automakers and the Wall Street Journal also has a story on the new alliance.

According to the Wall Street Journal, Fiat and Chrysler will enter an alliance in which Fiat will take an initial 35 percent stake in the troubled Detroit automaker, with an option to raise its ownership stake to 55 percent at a later date.

The terms of the deal do not require Fiat to pay any cash to Chrysler right away. Instead, Fiat will receive equity in Chrysler for investments it will make in retooling a Chrysler plant to produce Fiat models for the US market. Fiat may reach its intended 35 percent stake by the middle of the year.

It may be that Fiat has also simultaneously announced a return to the North American market or those vehicles will be badged under the Chrysler banner.

A merger of the two will extend the reach of each automaker, both of whom are relatively small compared to global giants such as GM, Toyota and Renault-Nissan.

Chrysler sold about 2 million vehicles last year, most of them in the US market. Fiat sold 2.5 million cars in 2008, mostly in Europe and Latin-America.

See press release below for official Chrysler statement.

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