MILAN — Italy's Fiat SpA said it now expects to be profitable this year and confirmed that Dodge next year will sell the first Fiat-based car for Chrysler Group LLC, Fiat's alliance partner, reported The Wall Street Journal.

The Italian auto maker will achieve an annual net profit of about €400 million ($555 million) rather than nearly breaking even, Fiat CEO Sergio Marchionne said in a conference call. The revision comes after Fiat's third-quarter profit climbed to €190 million from €25 million a year earlier. Revenue rose 12% to €13.5 billion.

Marchionne, who also serves as Chrysler's CEO, said a Fiat-based sedan carrying the Dodge badge will be built in the U.S. and debut by the end of 2011. The sedan will include a model that achieves 40 miles per gallon.

Building a 40-mpg car in the United States is one of the goals of Fiat's alliance with Chrysler as set by the U.S. government's auto-industry bailout last year. In order to raise its Chrysler ownership stake to 35 percent from 20 percent, Fiat must help Chrysler build the high-mileage car, develop a more fuel-efficient engine and expand sales outside North America.

"Within 2011, we should get to the 35 percent number barring unforeseen circumstances," Marchionne said.

However, the CEO took a step back on whether he would move to raise the ownership stake in the future to 51 percent because Chrysler's capital structure is still being worked out.

"It may very well be that Fiat, on the basis of its assessment of the ongoing profitability and prospects for Chrysler, may consider that to be a wise investment," Marchionne said. "I can tell you right now that I am not at that stage."

Fiat was the second European car maker this week to raise earnings targets after France's PSA Peugeot-Citroen's move Wednesday.

By the end of this year Fiat will split into two companies: Fiat SpA for passenger vehicles and Fiat Industrial SpA for its Iveco and CNH operations, which make trucks and farm equipment. Fiat Industrial is waiting for regulatory approval to list its stock Jan. 3 in Milan where Fiat also is listed. CNH will keep trading separately in the U.S.

Marchionne also brought some clarity to the issue of debt distribution between the two new companies, saying Fiat Industrial would likely take on 60 percent of it. Fiat's net industrial debt was €4 billion at the end of the quarter. The figure is expected to fall slightly below €4 billion by the end of the year.

Fiat's stock ended 4.4 percent higher at €12.24 in Milan, the highest level in two years. The market expected Fiat to raise full-year guidance but "the magnitude was bigger" than envisaged, UBS analyst Philippe Houchois said in a research note.