ROME – Fiat Auto SPA and Ford Motors have reached an agreement to work together to develop new models in the small cars segment. The move comes seven months after Fiat broke off from an alliance with General Motors Corp.

Both Fiat and Ford confirmed that a memorandum of understanding had been signed between the two companies to develop Fiat’s “Cinquecento”, which would be revived and a new model of Ford’s “Ka.”

Both these cars would be developed as two-door hatchbacks and would be sold at “entry-level” prices. Both the companies have been hit hard in recent times with falling sales and revenues and analysts say that these agreement would give both the companies some breathing space as far as competing on a global scale is concerned. Patrick Juchemich, auto analyst for the Sal. Oppenheim bank was of the opinion that this partnership made a lot of sense, “The volumes of the respective cars are too low to justify that they go their own way,” he said. Both the above-mentioned cars would be designed differently, though they would have the same engines, chassis, and bodywork, he added.

Ford’s European division appeared to agree with him for it released a statement saying, “By working together on this project, both companies would envisage reduced development and material costs, while providing highly competitive products to the marketplace.” Lapo Elkann, in charge of brand promotion at Fiat said that the two cars would basically be made on the platform of the Fiat Panda, but that the agreement could be broadened in future. “The industrial agreement will be on one line of product. I can’t tell if they will do more as they are still in talks,” said Elkann.

Fiat’s chief executive Sergio Marchionne had hinted on Tuesday that the Turin-based company was on the verge of signing another deal with a reputed manufacturer, but had not given any details. Fiat had emerged better off after the deal with General Motors collapsed, since GM had to pay $2 billion to cancel out a clause in the agreement.