Yesterday, Chrysler LLC and Fiat S.p.A., the Italian automaker, jointly announced that Chrysler, Cerberus Capital Management L.P. (the private equity majority owner of Chrysler) and Fiat have entered into a non-binding term sheet to establish a global strategic alliance. Chrysler CEO Robert Nardelli lauded the proposed partnership as a means to “support [Chrysler’s] viability and long-term competitiveness.”

Under the terms of the alliance, Fiat will receive an initial 35 percent equity interest in Chrysler, in exchange for providing Chrysler with access to its fuel-efficient vehicle platforms and technologies, distribution capabilities in growth markets, cost savings with respect to design, engineering and manufacturing, and management services to supplement Chrysler’s submission of a restructuring plan by February 17 of this year. However, Fiat has not committed to make any cash investment in Chrysler or to fund Chrysler in the future. While further details of the non-binding agreement are not publicly available, several reports indicate that Fiat will have an option to buy an additional 20% of Chrysler for approximately $25 million, and will be given three seats on Chrysler’s seven-seat board.

The proposed alliance will be consistent with the terms and conditions of the $4 billion bridge loan provided by the U.S. Treasury to Chrysler last December, and as a practical matter, may be conditioned on Chrysler’s receipt of additional government financing, which is not assured. Consummation of the proposed transaction, which remains subject to completion of due diligence, negotiation and execution of definitive documentation between the parties and receipt of all regulatory approvals, including from the U.S. Treasury, is not expected until April 2009.