Yesterday we brought you news of merger talks between FIAT and Chrysler, but due to the time difference could not draw statement from the Italian manufacturer.

Overnight however FIAT has confirmed that it does indeed intend to acquire an initial 35 per cent stake in Chrysler LLC.

FIAT believes the deal will give it the scale it needs to survive, and says it has the option to boost its stake to 55 per cent at a later date.

From Turin FIAT vice-chairman John Elkann said of the stake “We can raise that, it’s a good deal. We have already said that it’s important to have consolidation in the auto sector.”

In a joint statement, FIAT, Chrysler and Chrysler majority shareholder Cerberus Capital Management L.P, said “a non-binding term sheet to establish a global strategic alliance” had been signed and that the pact “would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrains, and components to be produced at Chrysler manufacturing sites.”

Under the terms of the deal, FIAT would make available its distribution network in key growth markets. The carmakers said a tie-up would allow the companies to take advantage of each other’s other’s distribution networks. They also said there would be opportunities to optimise fully their respective manufacturing footprint and global supplier base.

FIAT Group CEO Sergio Marchionne said “The alliance confirms FIAT and Chrysler’s commitment and determination to continue to play a significant role in the global auto industry”.

Chrysler CEO Bob Nardelli said “The alliance creates the potential for a powerful, new global competitor. A number of strategic benefits, including access to products that complement our current portfolio; a distribution network outside North America; and cost savings in design, engineering, manufacturing, purchasing and sales and marketing.It would also provide a return on investment for the American taxpayer by securing the long-term viability of Chrysler brands in the marketplace, sustaining future product and technology development for our country and building renewed consumer confidence, while preserving American jobs.”

Ron Gettelfinger, president of the United Auto Workers union, said: “This is great news for the UAW Chrysler team and we look forward to supporting and working with them to ensure Chrysler’s long-term viability.”

A Daimler spokesman declined Tuesday to comment on prospects for a combination of FIAT and Chrysler other than to say “We welcome any initiative that serves to stabilise the situation at Chrysler and preserve jobs at the company.”

Daimler is seeking to sell its 19.9 per cent stake in Chrysler.