The two carmakers said they expected to save on development costs and benefit from economies of scale in the production of the vehicles and procurement of parts. For Fiat (search), the deal is part of its strategy to seek limited alliances in an effort to revive its fortunes.
Under the deal announced Monday, the platform Fiat used for its successful Panda (search) car will be used for the two new models: a revival of Fiat's iconic Cinquecento, and a new Ford Ka that will be made at Fiat's factory in Tyche, Poland, the companies said. They expect to make 240,000 annual units, split equally between the two brands.
The two cars "will play a significant role in each company's European product range," the automakers said, adding that each vehicle would retain its brand characteristics.
Turin-based Fiat said in September it signed a "memorandum of understanding" with Ford to work with the U.S. carmaker on the two models. That came after a broad-based alliance between Fiat and Detroit-based General Motors Corp. (search) collapsed in February.
Sergio Marchionne, chief executive of Fiat Group and Fiat Auto, described the new deal as "another milestone in our strategy that calls for targeted alliances aimed at sharing financial and industrial resources on new products and platforms."
Fiat also has agreed with Suzuki Motor Corp. to work on a small sport utility vehicle to be launched by next year, and is studying production of diesel engines in Asia for the Japanese automaker.
The Italian company is also studying an alliance with India's Tata Motors Ltd.
John Fleming, Ford of Europe president and chief executive, said "Fiat is the ideal partner for us in this particular project, as they are acknowledged as having been for many years one of the world's leading manufacturers of small cars."
Fiat has been battling for a comeback after years of declining fortunes. The company posted a third-quarter net profit, after a loss in the year-earlier period, because of cost cutting and robust August sales at its struggling auto unit.
Shares of Dearborn, Michigan-based Ford rose 1 cent to $8.30 in morning trading on the New York Stock Exchange.