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Europe auto shake-up looms, Porsche sale debated

A RADICAL overhaul of the car industry moved a step closer today as Fiat's CEO prepared to pitch a bid for Opel to Germany's leaders as part of a planned takeover of General Motors' European assets.

As debate over the ownership of another Germany-based carmaker, Porsche, intensified, Sergio Marchionne sought government support for an ambitious plan to swallow up GM's European operations, less than a week after he secured a partnership deal with struggling U.S. automaker Chrysler LLC.

Fiat said in a statement yesterday that it could seek a merger of its auto group with GM's European unit, then spin off and list the combined entity, which it said would have sales of around 80 billion euros (US$106.3 billion) annually.

Fiat's board met yesterday to review the deal the Italian automaker secured with Chrysler last week and to give Marchionne its backing to go after Opel.

The CEO told the Financial Times today that he wanted a deal with Opel by the end of the month.

Fiat shares rose 7 percent by 0935 GMT, but an analyst questioned whether either the Italian or German governments would have the stomach to digest the huge job losses the combination would entail.


Combining with Chrysler as well as Opel -- which makes up 80 percent of GM Europe's annual sales of US$34.4 billion -- would tally with Marchionne's strategy for guiding Fiat through the crisis engulfing the auto industry.

He has previously said that a carmaker needs to make more than 5 million vehicles a year to make a profit, and in December he said Fiat did not have the scale it needs to survive alone.

Emphasising the depth of the crisis in the sector, Spanish car makers association Anfac said today that car sales in the country fell 45.6 percent in April, worsening their rate of decline year-on-year after a 38.7 percent drop in March.

Germany's Economy Minister Karl-Theodor zu Guttenberg said he did not expect a final decision on the future of Opel -- which employs around 25,000 people at its factories in Germany -- to come out of his meeting today with Marchionne.

The biggest opposition to a deal is likely to come from German and Italian unions, fearing synergies to be extracted from a merger would lead to job cuts and plant closures.

Nomura International analyst Michael Tyndall agreed. "Industrial logic-wise Opel makes a lot more sense than Chrysler. The big hurdle we can see is social cost," he said.

"It's all very well to say they compete broadly in the same markets with similar platforms and there may be economies of scale. But the broad translation of 'economies of scale' is 'fewer jobs' and I'm not sure if the Italian or German governments have the appetite for the job losses a merger would entail."

Fiat and Opel would merge their small B and midsize C segment car platforms, absorbing Fiat's ultra-small A platform and Opel's upper-middle D platform, the Financial Times said.

As well as Fiat, Austrian-Canadian car parts maker Magna -- which declined to comment today -- has also expressed an interest in Opel. The works council head of Opel said last week that other investors were interested in the unit.


Also in Germany, Focus magazine reported on Saturday that the Porsche and Piech families, which control Porsche Automobil Holding SE, were set to decide on a possible sale of Porsche AG and its eastern European dealer network to Volkswagen in a move to cut Porsche's holding company's large debt.

But Wolfgang Porsche, head of Porsche's supervisory board told the Frankfurt Allgemeine Sonntagszeitung (FAS) yesterday that Porsche would not be sold to Europe's largest carmaker.

Volkswagen shares were down 2.20 percent at 0848 GMT, while the DJ Stoxx European Autos index was up 1.01 percent.


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