Fiat says needs partner; auto merger round eyed

By Gilles Castonguay and Chang-Ran Kim

MILAN/TOKYO (Reuters) - Italian carmaker Fiat said it is too small to survive alone, drawing attention to prospects of mergers in an industry battered by the economic crisis as Sweden reportedly mulled a rescue package for Volvo and Saab.

Fiat's chief executive Sergio Marchionne was quoted as saying over the weekend that only six big players would be left in the world once a phase of consolidation, which he expects to start next year, ends.

With carmakers across the globe slashing output as tight credit conditions and deepening consumer uncertainty cripple sales, unions at Chrysler LLC said they would consider an alliance with a rival if it helped save jobs while Toyota, the world's biggest manufacturer, was said to be eyeing spending cuts of up to 40 percent.

Marchionne said only one of the six big players remaining would be in the United States, where negotiators sought on Sunday to finalize an emergency rescue package for the 'big three' manufacturers after data showed vehicle sales in what is the world's largest market plunged in November to the lowest level since 1982.

"It absolutely makes sense. The downturn will precipitate the consolidation of the automotive industry," said Societe Generale analyst Eric-Alain Michelis.

"Chrysler will definitely disappear (as it is) ... small enough to be swallowed up."

However, Marchionne's prediction that only one U.S. manufacturer would remain was too extreme, and any merger of Ford and General Motors would be "a bloodbath," Michelis said.

Ford and GM are both exploring a range of options for raising much-needed cash, including selling their operations in Sweden, where they might get a helping hand from the government.

Stockholm is expected to offer loans and loan guarantees worth several billion Swedish crowns to Ford's Volvo Cars and GM's Saab Automobile, which are both struggling, daily Dagens Industri reported on Monday.

The U.S. carmakers have discussed the kind of support that might be offered with the government, which declined to comment on the report.

Toyota Motor Corp, which fits Marchionne's profile of one of the six post-consolidation survivors, is considering cutting capital spending in the year starting next April by 30-40 percent, the Nikkan Kogyo newspaper reported on Monday.

It slashed its annual operating profit forecast by 1 trillion yen, Franco-Japanese Renault-Nissan -- which also has a stake in Russia's AvtoVAZ -- and Japan's Toyota.

Fiat has in the past been in alliance talks with both Ford and GM and currently has two joint commercial vehicle plants with PSA Peugeot Citroen.

SocGen's Michelis said a tie-up with PSA would make sense for the Italian manufacturer as the two together would meet the 5.5 million cars a year production Marchionne said would be viable, and would become the number-one maker of small cars in the world.

"In a consolidation process, Fiat Auto's key attractions are small car expertise, efficient engines emerging market positions and established low-cost manufacturing (Poland)," said UBS analyst Philippe Houchois in a research note.