Fiat has worked out a deal with the United Auto Workers union’s retired employee medical benefits trust that will see the Italian automaker take full control of Chrysler.

The UAW’s VEBA trust and Fiat came to an agreement today that ends months of intense negotiations between the two parties. Fiat will pay $3.65 billion for a 41.46 percent stake in Chrysler currently controlled by VEBA, which came into the share as a result of the United States federal government’s bailout of the automaker in 2009. Previously, the two parties had been unable to agree on a price for the remaining stake in Chrysler that Fiat did not own.

The purchase itself will by made by Fiat’s North American operations on or before January 20.

Chrysler will contribute $700 million to the trust over a four year period as a condition of the deal, while the UAW says that it will drop a court proceeding regarding options Fiat exercised when it first began acquiring shares in Chrysler.

Fiat is expected to take Chrysler public within the next few months on the New York Stock Exchange.

Fiat’s CEO has been outspoken about his plan to acquire all of Chrysler. Between Chrysler’s relatively cash-flush situation and proceeds raised via an IPO, Fiat CEO Sergio Marchionne has said that the two automakers will be able to streamline their increasingly merged operations. Fiat also needs Chrysler’s cash to help revive its lineup in Europe and other overseas markets.

Photo by Ronan Glon.

Given the chance to turn back the clock and start the Chevrolet Volt project from scratch, former GM vice chairman Bob Lutz says he would likely take the plug-in hybrid vehicle in an entirely different direction.

In an interview with The Seattle Times, Lutz stated that the decision to make the Volt a compact sedan was a mistake.

Instead of fitting an extended-range electric powertrain to an already-efficient small car, more significant benefits could have been achieved by applying the same concept to a less economical vehicle like a truck.

“The whole automotive industry made the intellectual mistake of thinking EVs were all about maximum range, so we all started with small vehicles that are basically very economical anyway,” Lutz said. “Yes, you do save fuel. You can use a smaller battery, but it makes less sense to take a 40 mpg vehicle and make it electric than it does to take a full-size pickup or SUV, which in town realistically gets 11 to 12 mpg. If you take that to 100 mpg, now you’re really saving money and saving a scarce natural resource and reducing CO2 emissions drastically.”

Lutz’ logic is hard to fault, although critics note that there may be a self-serving element to his words – after leaving GM in 2010, Lutz joined the board of Utah-based VIA Motors, which produces plug-in hybrid versions of GM pickups, SUVs and vans.