Fiat team goes to work at Chrysler as deal pends

* Marchionne leading team of Fiat executives at Chrysler

* Plans under way for fast-track launch of 500 -sources

* Chrysler vehicle plans scoured for part sharing -sources

By Kevin Krolicki

DETROIT, June 4 (Reuters) - A growing team of Fiat SpA
(FIA.MI) executives and engineers has been working at Chrysler's
Detroit-area headquarters this week, finalizing plans to cut
costs and ready the Fiat 500 small car for the U.S. market,
people with knowledge of the work said.

Fiat Chief Executive Sergio Marchionne, who is expected to
take over operational control at Chrysler, has been leading the
team from the Italian automaker, according to the sources who
asked not to be named because a deal to merge the two companies
under Marchionne has not been cleared by U.S. courts.

A Chrysler spokeswoman was not immediately available for
comment. Fiat had no comment.

A federal appeals court court will hear arguments from three
Indiana state pension funds looking to block the sale of most of
Chrysler's assets to a group led by Fiat on Friday.

Chrysler has been operating in bankruptcy with the backing
and financing of the U.S. Treasury since April 30.

The plan brokered by the White House-appointed autos task
force is for the United Autos Workers union to take 55 percent
of a reorganized Chrysler in a deal that has been on track to
close this month.

The U.S. government and Canadian government would hold a
combined 10 percent stake.

Fiat would obtain 20 percent of Chrysler in exchange for
bringing its small-car technology and management to the U.S.
automaker. Fiat's stake would rise to 35 percent over time as it
meets benchmarks in the company's turnaround.

But in advance of the closing of the Chrysler deal,
Marchionne has been leading an effort involving several dozen
executives from Italy intended to drive cost savings on parts
purchasing and to smoothe the way for the introduction of the
Fiat 500 to the U.S. market.

Smaller than a Mini, the 500 is expected to get more than 40
miles per gallon (17 km per liter) as measured by U.S.
regulatory standards.

Named Europe's car of the year for 2008, the 500 was the
centerpiece of Fiat's pitch to U.S. officials that it could help
reinvent Chrysler and move it away from its reliance on heavier
trucks and minivans.

Plans are for the 500 to be brought over to Chrysler's U.S.
dealers 18 months after the work on readying it to meet U.S.
safety standards began, the people with knowledge of the effort
said. That aggressive timetable is intended to bring the 500 to
U.S. showrooms by the end of 2010.

The plan is for the 500 to be the first new product
introduced by Chrysler under the still-pending deal with Fiat,
the sources said.

In April, before Fiat had sealed a deal to take its
controlling stake in Chrysler, Jim Press, Chrysler's vice
chairman, was promoting the 500 by driving one onstage for his
appearance at a news conference for the New York auto show.

Press, speaking to reporters on Wednesday in Washington,
said work had already begun to produce a range of new vehicles
based on Fiat vehicle architectures and powertrains.

A separate team of Fiat engineers has been working with
Chrysler to examine plans for vehicles still in development part
by part to see where the two companies can begin to share
components to bring down costs, sources said.

One potential complication of that effort is the deep drop
in Chrysler sales this year.

Chrysler's 2008 sales were near 2 million vehicles, which,
combined with Fiat's 2.2 million vehicle sales, would have
created a combined automaker with global sales near Hyundai
Motor Co (005380.KS), projections prepared by Fiat showed.

But Chrysler's sales in the United States have plunged by 46
percent through the first five months of the year. That is a
problem because the U.S. automaker has relied on the U.S market
for almost 90 percent of its overall sales.

Auto suppliers have been hurt by the sharp decline in
industry production volume. In a further blow, Chrysler opted to
shut down all of its factories during its bankruptcy.

Restructuring advisers and analysts have said many of the
smaller and privately held suppliers could face a cash crunch as
auto production picks up and they are asked to bring workers
back and restart plants.

"Our production for our company will start by the end of
June. For all of our parts," Chrysler's Press said on
Wednesday.
(Additional reporting by John Crawley in Washington and Gilles
Castonguay in Milan, editing by Matthew Lewis)