UPDATE 2-Smiles hide the strains between Europe's carmakers
* Fiat boss Marchionne stays on as industry group head
* Marchionne rows back on Europe-wide move on overcapacity
* VW still wants presidency of ACEA reformed - source
By Jennifer Clark and Andreas Cremer
PARIS, Sept 28 (Reuters) - Fiat and Volkswagen patched up some of their differences on Friday, with the Italian firm's boss staying on as head of the European carmakers' association, though tensions over pricing and capacity continue to simmer in a struggling car market.
A row between Fiat boss Sergio Marchionne and his Volkswagen counterpart Martin Winterkorn broke out in July, underlining carmakers' diverging views on issues ranging from CO2 regulations and trade policy to, crucially, how to solve the long-running problem of excess production capacity.
Too many factories making too few cars has been hurting company profits in Europe, where competition is fierce and sales are falling as austerity keeps drivers away from showrooms.
Relations between German automakers and others are strained by their contrasting situations - with overcapacity concentrated among mid-market carmakers in France, Spain and Italy, while German carmakers benefit from higher-margin cars and exports.
Total European car sales fell 6.6 percent in the period from January to August. Within that, the Volkswagen (VW) group swelled its market share to 25 percent, compared with 11.9 percent for European number two PSA Peugeot Citroen and 6.5 percent for the Fiat group.
At their height, the tensions between Fiat and VW saw the German group call for Marchionne to stand down as head of the European automakers' industry group ACEA.
Marchionne confirmed after an ACEA board meeting at the Paris auto show on Friday that he had not quit.
"We're good friends," he said, referring to Winterkorn as they embraced for a photo.
When asked if the spat was resolved, Winterkorn said: "What spat? We hugged each other."
HUGS BUT NOT KISSES
Marchionne, who also runs U.S. automaker Chrysler, has repeatedly called for Europe-wide action on closing plants and cutting jobs.
He appeared to row back from that position on Friday after comments from other executives saying firms should act alone.
Renault boss Carlos Ghosn said he saw "zero chance" for a government-led restructuring of Europe's auto industry. "Every company is going to have to deal with its own problems," Ghosn told Reuters Television on Thursday.
Marchionne said on Friday that ACEA's board agreed all members would reach individual decisions on issues like plant closures. "There is no common position on this matter at ACEA, other than dealing with regulatory issues."
The outspoken Marchionne raised tensions with the more measured Winterkorn in July when he accused VW of being too aggressive and undercutting competitors.
VW sales chief Christian Klingler defended the company's pricing strategy on Thursday and said the company would continue to act with "restraint".
A monthly study of the Centre for Automotive Research at the University of Duisburg-Essen, Germany, showed VW was offering a 21-percent discount on the expiring sixth-generation Golf hatchback, the carmaker's best-selling vehicle.
German newspapers have said VW is already offering 20 percent discounts on the new Golf, one of the highlights in Paris and due to hit showrooms in Germany in mid-November.
Klingler added: "It would be the first time ever that we come up with a new product (the new Golf) only to push it into a discounting battle. That's complete nonsense."
Renault's Ghosn was at pains to stress harmony between carmakers at a news conference with partner Daimler.
"There's no difference between Germans and Latins, north and south," he said. "Sergio is still the president and everything's fine."
Daimler Chief Executive Dieter Zetsche added the ACEA meeting had ended early with "hugs but not kisses".
But an industry source told Reuters VW still wanted a longer-term revamp of ACEA's structure that would see an end to the presidency's rotation among carmakers and turned into a permanent, neutral role.
And sniping over Fiat's upmarket Alfa Romeo brand showed the relations between the two companies were still tense, as VW chairman Ferdinand Piech said on Wednesday the German company was still interested in buying it.
Marchionne hit back that the division was not for sale. "Do I have to say it in German?"