According to Quattroruoute, an Italian magazine, Fiat has begun work on a hybrid powertrain for small vehicles and would likely share its design and engineering with Chrysler if a merger occurs.

The hybrid powertrain will likely go in the small Fiat 500 and maybe even the yet to be released Topolino.  The hybrid system will be used alongside Fiat's 2 cylinder, 900cc turbocharged engine.  An engine essentially the size of a small motorcycle engine, but it provides sufficient power for the diminutive 500.

The hybrid system will use a lithium ion battery source and a plug-in version may be in the future as well.

Fiat could be the first automaker to incorporate a hybrid system in a very small vehicle.  Most vehicles the size of the 500 are either all electric power, or as in the Smart car, powered by a gasoline of diesel engine.  A hybrid system could make an already efficient vehicle, more efficient.

The system could find its ways into Chrysler re-branded vehicles if and when the merger between Chrysler and Fiat occurs.

Source:  Quattroroute