Severstal is to produce the Fiat Palio and Fiat Albea models under the agreement. Production of the two models will begin in 2007 at Severstal's ZMA plant in Naberezhnye Chelny, in the Volga republic of Tatarstan.
The companies also agreed to continue negotiations on expanding cooperation, and producing other Fiat models in Russia, including the Fiat Doblo people carrier.
The ZMA plant produces the Russian Oka car, but will end production of that model in summer this year. At the end of 2005, Severstal began producing Korean Ssang Yong off-road vehicles.
Fiat signed an agreement in 1998 with Russian car manufacturer GAZ and the European Bank of Reconstruction and Development to create the joint venture SP Nizhegorod Motors, and planned to produce its cars at the GAZ plant in Nizhny Novgorod.
In April 2002, Ruspromavto, which owns a majority stake in GAZ, signed an agreement with Iveco, a Fiat subsidiary, on cooperation up to 2007. GAZ and Iveco agreed to create a joint venture for assembling minibuses. The companies subsequently plan to produce heavy goods vehicles and buses. Production under the agreement is yet to begin.