Fiat S.p.A. and Chrysler LLC confirmed Tuesday that the Italian company intends to acquire an initial 35 percent stake in the U.S. carmaker. The deal will give Fiat the scale it needs to survive, while Chrysler can expand its product portfolio to include small, less-polluting cars.

Chrysler said on Tuesday the deal, which involves no cash investment, formed a key component of plans to secure its future, and would grant it access to Fiat's more fuel-efficient vehicle platforms, engines and transmissions.

According to press reports, Fiat will have an option to boost its stake to 55 percent at a later date.

Fiat vice-chairman John Elkann told reporters on Tuesday that the Italian group could increase its Chrysler stake from 35 percent.

"We can raise that," Elkann said. "It's a good deal ... we have already said that it's important to have consolidation in the auto sector," he added.

In a joint statement, Fiat, Chrysler and Chrysler's majority shareholder Cerberus Capital Management L.P, said they have signed "a non-binding term sheet to establish a global strategic alliance."

The pact "would provide Chrysler with access to competitive, fuel-efficient vehicle platforms, powertrains, and components to be produced at Chrysler manufacturing sites," the companies said.

Under the terms of the deal, Fiat would make available its distribution network in key growth markets. "Substantial cost savings opportunities" would be available to the alliance, the companies said.

The carmakers said a tie-up would allow them to take advantage of each other's other's distribution networks. They also said there would be opportunities" to optimize fully their respective manufacturing footprint and global supplier base."

The companies said Fiat would take "an initial 35 percent equity interest" in Chrysler, but it would not make a cash investment or commit funding to Chrysler.

Fiat Group CEO Sergio Marchionne said the alliance "confirms Fiat and Chrysler commitment and determination to continue to play a significant role" in the global auto industry.

Chrysler CEO Bob Nardelli says the alliance "creates the potential for a powerful, new global competitor." He added that it offered Chrysler "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."

Nardelli also said the partnership would "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 stabilize the situation at Chrysler and preserve jobs at the company."

Daimler is seeking to sell its 19.9 percent stake in Chrysler.

Reuters contributed