Automaker Fiat SpA's (F.MI) long-term survival prospects in a looming Darwinian car industry shakeup will grow significantly if the U.S. government approves its partnership plan with Chrysler LLC (C.XX) Monday, analysts and Fiat management say.

Most commentators have pointed out that Chrysler needs a partner to continue as a viable business. But Fiat Chief Executive Sergio Marchionne, for his part, also sees a deal with Chrysler as a crucial part of Fiat's long-term plans.

"As the world auto market stands today, the conditions for Fiat to continue as a standalone business don't exist," Marchionne said Friday, referring to the excess production capacity that has plagued the auto industry in the developed world for decades. "It's the same for all auto companies across the industry, no matter where they operate. The market is wide open. Let's try to manage this change together."

U.S. President Barack Obama is due to announce Monday at the White House whether the government will give Chrysler and General Motors Co. (GM) further loans they say they need to become viable businesses and avert bankruptcy, his press secretary said Friday. Chrysler is seeking $5 billion. Its partnership with Fiat doesn't call for cash investment by Fiat.

A Fiat spokesman Sunday said the automaker had no further information on the task force's decision.

Saturday, Fiat issued a statement saying it is optimistic that a deal could be reached.

The U.S. government wants GM and Chrysler to make a deal with bondholders and employees.

Excess capacity in the auto industry means that even merged companies will still have to make more staff cuts.

Marchionne appeared before the task force in recent days, and Friday pledged to make any changes to the plan that the U.S. government requested.

Chrysler has submitted two plans to the U.S. governments auto task force for approval. One is a standalone plan and one is a partnership with Fiat whereby the Italian automaker takes a 30%-35% stake in Chrysler that would give it rights to build vehicles at Chrysler's underused North American plants and sell its small, sporty cars at Chrysler's dealerships.

Chrysler, for its part, would gain access to the Fiat platforms, engine technology and transmissions that make it Europe's leading "green" manufacturer in terms of low tailpipe emissions.

The two companies are a good fit both geographically and product-wise, analysts and management at both companies have said, although they both lack a footprint in India and China.

"Unlike some recent auto industry mergers that have not lasted, this agreement stands a good chance of succeeding because it fulfills strong needs for both parties," said IHS Global Insight in a report.

On the face of it, Chrysler needs Fiat more than Fiat, which is profitable and hasn't received aid from the Italian government, needs Chrysler. Chrysler on its own lacks the global reach and viable long-term plans for small cars that would enable it to meet U.S. CAFE emission standards, which are likely to become more stringent.

"That's broadly true, but I think Fiat has very strong intentions for the U.S. after the global recovery in terms of its Alfa Romeo," said Andrew Fulbrook, senior analyst at CSM Worldwide in London.

Analysts say Fiat needs Chrysler's rear-wheel drive technology to boost Alfa's appeal as a high-performance, prestige brand. Alfa uses front wheel drive and it would be costly for Fiat to develop a rear-wheel drive technology.

Chrysler is likely to use Fiat's smaller engines and new dry dual-clutch automatic transmissions in its own-branded models, said Fulbrook, which would probably eventually be produced in re-tooled Chrysler factories. That could save jobs in the Midwest, which is an important consideration for the U.S. government.

While a Fiat-Chrysler tie-up would benefit both companies, it will take a long time to show results - time that Chrysler may not have.

"Our goal is to end up holding a stake in a viable company that's worth something," said Marchionne. "We're willing to wait. There's a lot of hard work to be done and it will take years to see results."

 
   Company Web site: http://www.fiatgroup.com

-By Jennifer Clark, Dow Jones Newswires; 39 02 58 21 9904; jennifer.clark@dowjones.com