European troubles could rattle Fiat

[NINETY EIGHT REGENCY]

European troubles could rattle Fiat

Chrysler expects to see April sales jump

BY GREG GARDNER

FREE PRESS BUSINESS WRITER

Chrysler expects to report its first substantial monthly sales increase in the U.S. in more than two years Monday, but CEO Sergio Marchionne is shifting attention to Fiat, where problems are deepening.

The European half of this new alliance is facing change nearly as wrenching as Chrysler's government-backed bankruptcy. Car sales in Italy are expected to fall about 15% this year because the government stopped paying consumers to replace dilapidated old vehicles. Fiat is separating its car business from Iveco trucks and CNH farming and construction equipment, both of which have been battered by the global credit crisis.

Now Greece's potential bankruptcy, which some experts say could spread to Portugal, Spain and even the U.K, could inflict serious pain throughout Europe.

"The harsh reality is that this industry has failed to generate adequate returns on investments," Marchionne said last week as he outlined Fiat's five-year plan. "We're going to have to change the dynamics of this industry."

Marchionne's vision is to create a profitable global automaker selling at least 5 million vehicles a year. Chrysler and Fiat can come close to that by 2014 if the global economy recovers and they successfully integrate vehicles across Europe and North and South America.

"I was impressed by his belief that Chrysler can help Fiat as much as the other way around," said John Wolkonowicz, an analyst with IHS Global Insight.

For example, more Jeep models will be sold in Europe. Some Dodge models could be sold as Fiats in Europe and Chrysler and Lancia brands will share future models to expand each other's product lineups. Select Alfa Romeo models could be offered in the U.S. if they can meet sales targets in Europe.

The purpose of separating Iveco and CNH is to raise capital and make Fiat Autos easier for investors and potential future partners to understand. Fiat is a complex industrial holding company, not unlike General Motors when it owned Hughes Electronics, EDS and produced large locomotive engines.

Here in the U.S., Chrysler is to launch the 2011 Jeep Grand Cherokee next month, the first of about six new or freshened models to hit showrooms by early 2011.

In stark contrast to the old Chrysler of Lee Iacocca and Bob Eaton, Marchionne has discouraged any advance buzz on new products. He also has avoided talking about repaying U.S. and Canadian taxpayers.

While GM has blanketed the airwaves with ads touting its early government debt repayment, Chrysler said last November it would repay $8.2 billion in taxpayer assistance by the end of 2014, and virtually nothing since.

Bernstein Research analyst Max Warburton recently raised Marchionne's hackles by suggesting Chrysler would eventually be reduced to "Ram, Jeep and a U.S. production base for Fiat."

"I will take all the criticism you can throw at me," Marchionne fired back. "But I will not take criticism that doesn't understand the amount and quality of work this house has achieved."

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