Chief Executive Sergio Marchionne declined to identify the potential partner, saying only that "the industrial alliance will not be with an Asian company".
Fiat’s alliance with GM ended in February, with GM paying Fiat cash in settlement.
Marchionne said Fiat Auto is investing around €10bn (£6.8bn) in 20 new models between 2005 and 2008. The new Punto, which represents around a quarter of the company's car sales, is expected to be the most crucial contributor to an improved top line performance. Fiat Auto aims to return to profit in 2007 after five years of losses to date, while the parent Fiat group is hoping to post a net profit this year.
Fiat Auto accounts for around 40% of Fiat group's revenues. Marchionne said Fiat will have reduced its debt by about €4.8bn (£3.3bn) this year.
Fiat Auto cut its operating losses by two thirds to €88m (£59.5m) in the second quarter of this year, while its parent’s fortunes have been helped by strong performances by the Iveco CV subsidiary and the agricultural machinery subsidiary CNH (Case New Holland) Global NV.