DETROIT • Fiat and Chrysler said Tuesday that they have agreed to form a strategic alliance that would give the Italian auto empire a 35 percent stake in the troubled U.S. carmaker.

The deal could bring badly needed small cars to Chrysler’s showrooms and may also help the automaker prove it can become competitive to get another $3 billion in loans from the federal government. The companies said the Fiat deal will be part of the viability plan Chrysler must submit to the Treasury Department by Feb. 17.

How Fiat benefits

The deal gives the automaker, which also makes Lancia and Alfa Romeo vehicles, ready access to Chrysler’s underused factory capacity in the U.S. and an instant distribution network to re-enter the American market.

The challenge

Chrysler faces 2009 with a critical cash shortage, limited fuel-efficient offerings, a model lineup that is not selling well and a two-year wait for the Fiat partnership to bear fruit.”There’s a substantial interim period here. You’re not going to see Fiat-designed Chrysler products for at least 24 months,” said Michael Robinet, vice president of global forecast services for Northville, Mich., auto consultancy CSM Worldwide.

The deal

Fiat’s stake could be expanded beyond 35 percent, although Chrysler spokesman David Elshoff would not say if either company had a specific number in mind. The companies’ agreement is nonbinding at this point, but they hope to have a final agreement by April, Elshoff said.

Fiat has expressed interest in bringing its Fiat 500 compact car and the Alfa Romeo brand to the U.S. Photo by (AP Photo/Fiat, File)