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Fiat will sit out alliances this year, Reuters reports

Fiat is unlikely to negotiate a cost-sharing alliance with another carmaker this year, a person with direct knowledge of the situation told Reuters, as it focuses on its own operations and extending its footprint in China and Russia.

Fiat-Chrysler CEO Sergio Marchionne has been very vocal on the need for companies to share costs through alliances, but its options for partners in Europe were sharply reduced by France’s PSA/Peugeot-Citroen linking up with General Motors Co. in a deal aimed at saving $2 billion in annual costs by 2017.

Now Fiat has “no time for an extravaganza” this year, the person with direct knowledge said.

The Italian carmaker had been in the frame as a potential partner for Peugeot or GM, and Marchionne had spoken to both companies over the past year.

The Peugeot-GM accord complicates life for Italy’s Fiat because it won’t lead to any capacity cuts, which industry executives believe are necessary to help their loss-making European operations return to profit.

Fiat can afford not to rush to find alternative candidates to team up with, analysts have said, and it has 20.7 billion euros ($27.41 billion) in cash with which to ride out weak market conditions.

Marchionne held talks with Peugeot’s CEO Philippe Varin in 2009 to discuss sharing powertrains and platforms, another person familiar with the matter said, but talks went nowhere due to lack of interest from the Peugeot family, insiders told Reuters.

The talks went on for some time and predated the start of talks between the French automaker and General Motors, Co. in an alliance announced in late February.

“Varin was keen, but the Peugeot family was not,” the person familiar with the matter said.

Fiat-Peugeot talks

Varin and Marchionne found the talks a natural process because they knew each other from in 1990s, when both worked in the aluminum business, and because the companies already had a joint venture for light trucks. Their discussions never reached board level, however, said two people familiar with the matter.

It was not the first time the companies held talks. In late 2008, Fiat chairman John Elkann began sounding out the Peugeot family about an alliance and was rebuffed.

Elkann hails from the Agnelli family, which founded Fiat more than a century ago. France’s Peugeot is also a family business, and its family will own about 25 percent of Peugeot with 40 percent of voting rights after GM buys a 7 percent stake.

The issue of ultimate family control was an obstacle to a possible deal with Fiat, Turin insiders have told Reuters.

Elkann also sounded out Honda, Ford and BMW about potential alliances in late 2008 and the early part of 2009. None of these came to fruition, because European governments stepped in with loans and aid in mid-2009, insiders have told Reuters.

Fiat believes its partnership with Chrysler gives it the size it needs to be a consolidator or dominant party in any future partnership or alliance, a Fiat spokesman said.

The Agnelli family is open to diluting its stake in the auto industry up to the point of losing control of its auto assets if it results in a stronger, more lasting company, Elkann has said repeatedly.

Marchionne briefly discussed merging its European business with General Motors CEO Dan Akerson earlier this year at an industry dinner, The Wall Street Journal reported earlier this month.

Fiat declined to comment on the report.

Asian challenge

With the active search for an alliance partner sidelined for now, Fiat is focusing on building two new factories that will push it forward in emerging markets.

In China, the world’s biggest car market, Fiat will start producing cars at its new factory from July with Chinese partner GAC. The 350,000-vehicle, star-shaped plant will produce the Fiat-badged version of the Dodge Dart. Other models will follow including likely the Jeep.

In Russia, Fiat is finalizing details for the construction of a new factory that will build 120,000 Jeeps and light commercial vehicles per year.

Fiat also has to concentrate on combining commercial operations with Chrysler in Brazil and in Asia, insiders said.

Fiat is well-suited for an Asian partnership, since consumers there use the small cars that Fiat is adept at making and there are a number of globally small players there. Japanese manufacturers Mazda and Mitsubishi are both often mentioned as suitable alliance partners for Fiat. Mazda no longer has Ford as a partner, and will eventually need to replace the Ford platforms it had been using.

Asia is the area where the company will increasingly be focusing, several insiders said. But the cost of an equity deal with an Asian partner right now is prohibitive, the person with direct knowledge of the matter said.

Fiat’s partnership with India’s Tata is under the lens since its alliance in India “has tried to do too much,” Marchionne said at the Geneva car show earlier in March.

Fiat’s 50-50 joint venture with Tata calls for the carmaker to build and sell cars together. Fiat would like to strip out the distribution activities from the joint venture some time this year in order to gain control on the commercial side, said the person familiar with the situation.