Italy's Fiat and US giant Ford are to co-operate on producing and developing new small cars.
Fiat and Ford plan to build a new car on the Panda platform
The deal comes seven months after the end of Fiat's partnership with another major US carmaker, General Motors.
Ford said the plans were for two new vehicles - a new Fiat Cinquecento and a replacement for the Ford Ka.
A Fiat spokesman confirmed that the company planned to work with Ford on a new small car range, using the existing Fiat Panda as a platform.
On Tuesday, Fiat's chief executive Sergio Marchionne said he planned to strike a deal with another car manufacturer by the end of the year, but gave no details at the time.
Fiat's brand promotion manager Lapo Elkann told Italy's Radio24: "Fiat and Ford will make small cars together on the Panda platform."
The original Fiat Cinquecento was in production for 20 years until 1977. Four million were produced and have since become cult items.
The Fiat group - which also makes industrial and agricultural machinery - has been struggling with its underperforming car division for a number of years.
Previously loyal Italian consumers have developed more international tastes and the company has seen its market share shrink amid increased competition from foreign rivals such as Renault, Toyota and Peugeot.
Fiat reached a $2bn (£1.1bn) settlement with General Motors in February to end its previous joint venture.
GM wanted an end to a deal which could have forced it to expand its small stake in Fiat to outright ownership.