* Deal cements CEO Marchionne's reputation as dealmaker
* Two years of talks, investment freeze delay Fiat recovery
* Marchionne has said he might retire in 2015
* Making a success of complex deal could fall to successor
By Laurence Frost
PARIS, Jan 2 (Reuters) - Fiat's deal to take full control of Chrysler on better-than-expected terms has cemented CEO Sergio Marchionne's dealmaking reputation, but he might run out of road to channel that drive into operational success for the business.
The toll taken by two years of talks and an accompanying investment freeze has already delayed the Italian carmaker's recovery, and as Marchionne has said he might retire in 2015, his legacy could depend on how his successor plays the hand.
Under the $4.35 billion deal unveiled on New Year's Day, Fiat will acquire the 41.46 percent of Chrysler it does not already own from the United Auto Workers (UAW) union's retiree healthcare trust.
But Bernstein analyst Max Warburton predicted that Fiat shares, which got a 16 percent boost from the deal on Thursday, would hereafter be kept in check by the scale of the task ahead.
"Fiat and Chrysler is still very much a work in progress," he said.
The deal timing and price - below expectations and financed mostly by Chrysler cash rather than by Fiat - impressed even those familiar with Marchionne's track record.
In 2005, soon after joining as CEO, he persuaded General Motors to pay Fiat $2 billion not to exercise an option to sell its auto division to the U.S. carmaker.
Four years later he took control of bankrupt Chrysler through an initial 20 percent stake, stepping in after rival Nissan CEO Carlos Ghosn got cold feet over a similar cash-free deal he had negotiated with Chrysler.
More recently, Marchionne has pulled off the Italian carmaker's separation from farm machinery maker Fiat Industrial and secured the latter's merger with CNH after sweetening a buyout offer to minority investors.
Those successes reflect Marchionne's "very tough" negotiating tactics and an aversion to compromise, said Enzo Masini, an official with the FIOM union, which has clashed repeatedly with the Fiat boss over pay and conditions in Italian plants.
"He always tries to negotiate from a position of strength," Masini said. "If he doesn't feel he has an advantage, a situation where he can pin you against the wall, he won't open a negotiation."
Across the Atlantic, the UAW union had been seeking $5 billion for the stake held by its healthcare trust, before finally accepting the $4.35 billion - of which just $3.65 billion is to be paid up front.
Until Wednesday, many investors were braced for a potentially damaging Chrysler IPO after the union said it would exercise its right to float some of the shares in New York.
Fiat-Chrysler had raised the stakes by warning that a flotation could jeopardise the alliance.
Averting a share sale without paying the asking price was another classic feat of Marchionne brinkmanship, according to those who know him well.
"Marchionne must have convinced them the IPO would have been executed at an even lower price," said a senior Italian banker who is close to Fiat. "That's hardball - exactly where his strengths lie."
At stake is the completion of a transatlantic tie-up already five years in the making, which has shielded Fiat from the European slump threatening some of its peers.
Getting access to Chrysler's cash and industrial scale is critical to Marchionne's expansion plan for the Alfa Romeo and Maserati brands, designed to help Fiat's idling Italian plants export their way out of trouble.
But Marchionne's determination - some say obstinacy - in holding out for the right price has led to costly delays for Fiat's investment and recovery plans.
And the Italian factories are still waiting as they tick along at just 41 percent of capacity, according to 2013 estimates from IHS Automotive.
The Fiat brand's ageing models have seen their Western European market share tumble from 6.7 percent in 2007 to 4.5 percent in the first 11 months of last year, a loss of ground that may prove hard to recover.
While completing the Chrysler buyout may be his last big stunt for Fiat and its controlling Agnelli family, it could well be his successor who has to navigate the complex realities of a cross-cultural car merger, which have proven insurmountable for many other pairings.
While the CEO has said only that his replacement will be drawn from Fiat-Chrysler's 20-member executive council, Fiat No.2 Alfredo Altavilla is often cited as favourite.
Fiat maintains that product plans were never entirely frozen pending the buyout agreement, and development work has continued on shared vehicle architectures.
"Engineers haven't been sitting around waiting for the deal," a company spokesman said.
"What we haven't been doing is making final investment decisions in Europe to industrialise products," he said. "But you can do that very quickly - within about a year."