Fiat and BMW signed a memorandum of understanding on Tuesday to develop a common platform for future models of their respective Alfa Romeo and Mini marques.
The agreement was announced in a joint statement issued in Italy and Germany.
Earlier in the day Fiat CEO Sergio Marchionne said the Turin automaker had struck a new strategic alliance which would be officially announced on Wednesday.
However, the two carmakers anticipated their joint press release after news of the deal was leaked in the press.
''This is an important step in our strategy of targeted alliances. We are glad to work with such an esteemed and respected partner with a clear goal of boosting the competitiveness of both partners,'' Marchionne said.
According to sources at Fiat, the alliance between the Italian and German automakers will center on developing common platforms and components for Alfa Romeo and Mini models.
The agreement also provides for BMW offering Alfa Romeo support for the return of the Italian sports car to the North American market.
Last month, Marchionne said Fiat wanted to put Alfa Romeo, as well as the new Fiat 500, on the American market ''as soon as possible''.
He added that this implied producing the cars in America because ''it is impossible to build a (standard) car in Europe and then sell it in the US at a profit''.
BMW has a plant in the southern state of South Carolina.
The German carmaker said in its statement that the development of common platforms and components would allow both carmakers to cut costs.
There are unconfirmed reports that the collaboration will involve the latest evolution of BMW's Mini and Alfa Romeo's new subcompact MiTo, named after the acronym for Milano (Milan) and Torino (Turin) which also means legend.
Since dissolving its alliance with General Motors of the United States three years ago, Fiat has sealed over 30 targeted accords around the world with various motor vehicle and component producers.
The agreements focus on specific aspects which, aside from platforms and components, also include motors and transmissions as well as market niches.
Among Fiat partners are Ford Motor Company of the US, France's PSA (Peugeot-Citroen), Daimler of Germany, Japan's Suzuki, Indian carmaker Tata, Severstal of Russia and Chery Automobile of China.
Marchionne's strategy of targeted alliances helped turn Fiat around from a group which was losing $3.7 million a day, when he joined in 2004, to one which now returns a profit and continues to increase its market share.
This success was recognised by Automotive News Europe magazine which this week named him their Industry Leader of the Year 2008.
