MILAN Fiat's admission that its car business needs a partner to survive the economic crisis is as much a way to put pressure on the Italian government as it is an invitation to potential buyers.
Unlike Europe's other two major car-producing countries -- France and Germany -- Italy has yet to come out with a plan to support its struggling car industry.
Since Fiat's FIA.MI admission last week, the media has cited France's PSA Peugeot-Citroen (PEUP.PA) and Germany's BMW (BMWG.DE) as potential partners, but industry watchers do not see a deal any time soon.
"There will be no partner next year," Morgan Stanley's Adam Jonas said. "Everybody has way too much on their plate."
As falling car sales have put thousands of jobs at risk, France and Germany have pledged financial aid for their car industries. France's president has offered 1,000 euros to every driver who trades in an old vehicle for a less-polluting one.
Calls on Italy's government to act have grown louder as Fiat, the country's biggest industrial group, has halted production and sent thousands of workers home on reduced pay.
Even the archbishop of Turin, Fiat's hometown, has added his voice to the calls.
Fiat Chief Executive Sergio Marchionne's published comments last week about the group's car business being too small to survive was seen by analysts as a warning directed toward Rome.
"His message is that if it does not get any help from the government, it will be forced to take drastic measures next year," an industry analyst said on condition of anonymity.
One such measure could be the closing of two plants in southern Italy at the cost of more than 6,000 jobs.
"If the market gets worse, Fiat will burn a lot of cash and this would lead to a restructuring of its operations, especially in Italy," a second industry analyst said.
The two plants -- one in Sicily and the other near Naples -- are a thorn in Fiat's side because they cost more to run than those it has in other countries, the analyst said.
MEETING IN ROME
So far, Italy's government has only said it was looking at renewing fiscal incentives to buy new, less-polluting cars.
It has also said any further aid would have to be done in coordination with other member states of the European Union.
But business daily Milano Finanza has reported that Italy had spoken to France about a possible deal between Fiat and PSA.
It and Corriere della Sera have also said a meeting between the head of the holding company that controls Fiat and Prime Minister Silvio Berlusconi this week would review the idea.
A source close to the holding company denied the reports, saying the meeting on Monday had been with an adviser and did not concern cars.
NO DEAL IN 2009
Although a deal -- with PSA or another -- was likely in the long run, analysts do not see it next year.
Car makers are too busy cutting costs and have little money to spare for an acquisition, they said.
A even bigger barrier to a merger would be the inevitable plant closures and job losses that would follow when the merged company started to cut costs.
"This is diametrically opposed to what governments want -- which is to preserve as many jobs as possible in a time of crisis," said Morgan Stanley's Jonas.
Job losses are a major obstacle to a deal between Fiat and PSA given the overlaps in their businesses - both specialize in small- and medium-sized cars for the mass market.
Fiat would not have that problem with BMW, a premium brand with no presence in the lower end of the market.
That deal would give BMW a portfolio of cheap, mass-market cars and Fiat an extension of its premium range and access to technology.
But even this idea has its problems.
The last big deal between a mass-market car maker and a premium brand was Daimler's (DAIGn.DE) takeover of Chrysler -- a costly combination that quickly unraveled.
An outright sale of the car business would also see the foreign buyer confront politicians and union leaders who have found it hard to let big companies fall into foreign hands.
Government opposition saw AT&T (T.N) and America Movil (AMXL.MX) abandon their bid for Telecom Italia (TLIT.MI), while unions scuppered Air France-KLM's (AIRF.PA) offer for Alitalia AZPIa.MI.
An alternative could be to form a partnership like the cross-shareholding between Renault (RENA.PA) and Nissan (7201.T), said UniCredit's Sven Kreitmair.
"Fiat most likely wants to avoid being completely in French hands and Peugeot wants to avoid being in Italian hands," he said in a report about a possible deal with PSA.
UBS Warburg's Philippe Houchois was not convinced, however.
"A joint venture is difficult to manage," he said. "He (Marchionne) would prefer to sell 100 percent of it."
(Additional reporting by Gianni Montani in Turin; Editing by Chris Wickham)