Fiat and Ford are to join forces in creating two new city cars. Due to be launched in 2007/2008, the new Fiat 500 and Ford Ka will be developed and built together.
The agreement, signed on Monday, will see the new cars built at Fiat's existing Tychy plant in Poland, with Ford engineers working there on the new Ka. Powertrains for both will be built in Poland and Italy and come from Fiat.
The new cars are to be built on the current Fiat Panda platform. The projected annual volume will be around 240,000 units, divided evenly. Fiat strongly hinted at moves towards reviving the 500 - first introduced in 1936 with production ending in 1976 - when it unveiled its Trepiùno concept car at the 2004 Geneva Motor Show.
While the co-called city car market in Ireland represents just one per cent of overall sales, there is renewed focus in the market with the introduction of three new brands - Toyota, Peugeot and Citroën - to the segment.
On the continent sales have always been quite strong and Fiat will be hoping in particular to bolster sales in its home market, where Smart's Fortwo has been making serious in-roads into its sales, particulary in the major cities.
Fiat has long said it wants to work with other carmakers on specific projects to reduce risks and costs, part of a plan to return to profit from 2002's record loss.
Fiat already has a joint venture with France's PSA Peugeot Citroën to make vans, and the two have a deal to make the vehicles in Turkey with carmaker Tofas. Fiat has also co-developed an SUV with Suzuki and is in talks with India's Tata Motors.