Chrysler has moved closer to joining forces with Fiat after it settled some problems with its Canadian workers.

The Canadian Auto Workers union have agreed with Chrysler to allow layoffs and pay cuts to save the carmaker approximately $198 million a year. The deal includes the elimination of a third shift at Chrysler’s factory in Ontario, Canada.

The resolution of some of Chrysler’s union worries will make a co-op with Fiat much easier to go through.

Sergio Marchionne, Fiat's chief executive, said: “In light of what I know today, I see no reason why it won't happen.”

It has also been reported that Marchionne is interested in taking on General Motors' European operations, including Vauxhall and Opel. However, these rumours have not been confirmed.

Chrysler has until the end of this week to present its final restructuring plans to the US government.