Three people briefed on the deal say Italian automaker Fiat Group SpA will sign paperwork by Thursday to become a partner with Chrysler LLC.
The partnership is the last piece of a huge restructuring plan needed to keep Chrysler alive. The U.S. government has lent Chrysler $4 billion and gave it until Thursday to get concessions from unions, reduce debt and take on a partner or face liquidation.
The United Auto Workers union is expected to ratify a cost-cutting contract Wednesday night, and major banks have agreed to reduce Chrysler's debt.
The people briefed on the deal say Chrysler could still go into a short bankruptcy if about four dozen smaller lenders don't sign onto the banks' agreement.
The people did not want to be identified because the deal has not been made public.