New entity, to be named “Fiat Industrial,” would include CNH, Iveco and FPT Industrial and Marine.

Fiat CEO Sergio Marchionne announced that the Italian company will spin off its farm and construction equipment as well as heavy truck businesses to "give birth" to a global auto company that could feasibly build 6 million cars a year by 2014.

"We believe right now is the time produce the spin off," Marchionne told analysts after presenting Fiat's 5-year business plan. "It's the perfect time to do the spinoff. If we can do it now, we can weather anything."

Marchionne said Fiat didn't do it earlier because it needed the collective strength of all the business to turn the company around financially after he took over in 2004.

"Now, however, that process is complete and there is no longer any reason to keep together sectors that work with such diverse logic. The existing structure no longer serves any useful purpose," Marchionne said.

According to Henry Kirn, machinery analyst for UBS, Fiat is aiming to finish up the “demerger” of its CNH group from its automotive business for December of this year.

Other information about the spinoff includes:

* A new entity, to be named “Fiat Industrial,” would include CNH, Iveco and FPT Industrial and Marine.

* Fiat Industrial is to be created with classes of shares exactly mirroring Fiat’s current structure.

* As currently proposed, every Fiat shareholder is to own one share of Fiat SpA and one share of Fiat Industrial after demerger and listing.

Additionally, Fiat, which controls Chrysler LLC, announced that Agnelli family heir and company vice chairman John Elkann will move up to become board chairman. Fiat also owns between 85-90% of farm equipment maker CNH Global and its two major brands Case IH and New Holland Agriculture.

Fiat SpA said its board will formally approve the pick of the 34-year-old Eklann at a meeting on today. That same day, Fiat presents a 5-year business plan, including new models and tighter integration with Chrysler.

Earlier on Tuesday, Luca Cordero di Montezemolo, chairman since 2004, announced he was stepping down.

"Today, Fiat is a healthy and competitive company that has grown in all its sectors," Montezemolo told reporters. "There's no more drama about the company being close to bankruptcy."

The Agnelli family owns the controlling stake in Fiat, and Elkann's grandfather, Gianni Agnelli, ran the company for decades. It had long been expected that the 34-year-old Elkann — who was appointed vice chairman in 2004, the year after his grandfather's death — would take a greater leadership role.

Elkann has served on the board since December 1997, and his appointment as vice chairman followed the arrival of CEO Sergio Marchionne, who turned the company around after years of financial losses and who is now striving to make Fiat a global automaker producing 5.5-6 million cars a year. The deal to take an initial 20% stake in Chrysler last year was a key step, and the business plan Wednesday is expected to provide greater details on his strategy for the alliance.

Over the last half a decade, Elkann has been working closely with Montezemolo and other executives to learn the ropes, and keeps an office in the same wing of Fiat's headquarters in Turin as Marchionne and Montezemolo.

Elkann also heads the family's Exor holding company, through which the Agnelli heirs hold a controlling 30% stake in Fiat and other interests, including the Juventus soccer team and La Stampa.

Montezemolo is also chairman of Ferrari, which is majority owned by Fiat, since 1991 and was also its CEO until 2006. He previously served as chairman and CEO of Maserati, another Fiat brand, as well as president of Italy's industrial lobby Confindustria.