June 11 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne, who won his six-month battle to gain control of Chrysler LLC, has yet to prove he can rebuild the U.S. carmaker without losing sight of his original challenge: bolstering Fiat’s finances.

The 56-year-old Fiat CEO is assuming the same role at Chrysler after the Turin, Italy-based carmaker and its partners yesterday bought most of Chrysler’s assets, creating the world’s sixth-largest auto producer. His first move was to reshuffle the U.S. company’s leadership around its Chrysler, Jeep and Dodge brands, emulating a similar move he carried out at Fiat when he arrived in 2004.

Chrysler is losing as much as $100 million a day, global car demand is withering amid the biggest recession since World War II, and Marchionne needs to refinance about 4.5 billion euros ($6.3 billion) of Fiat debt coming due this year.

“Sergio Marchionne is at the top dealing with it all and there’s a lot to do,” said John Buckland, automotive analyst at MF Global Securities in London who has a “sell” rating on Fiat shares. “Fiat has to deliver platforms and technology and organize things so it can sell Chrysler cars and Fiat cars.”

Marchionne, seeking to trim Fiat’s 6.6 billion euros of net debt, has insisted the Italian automaker won’t inject cash into the newly formed Chrysler Group LLC. Fiat is providing technology such as engines and vehicle designs and will own an initial 20 percent of Chrysler Group. Fiat, which is controlled by Italy’s Agnelli family, will have management control as well as three of nine board seats.

Deputy CEO

Jim Press, who had been one of two presidents of Chrysler LLC, was named deputy CEO. He will also be a special adviser to Marchionne.

Fiat is taking on the Chrysler challenge even as its own business is being tested by falling demand for cars and trucks. In April Fiat maintained its main earnings target for 2009 after reporting a first-quarter loss of 410 million euros, the first quarterly shortfall since 2004. Fiat raised 1 billion euros in financing this year from its banks, less than originally planned, after its bonds were cut to junk status by Standard & Poor’s in March.

The carmaker confirmed its goal for earnings before interest, taxes and some items of more than 1 billion euros this year. Sales slumped 25 percent to 11.27 billion euros in the first three months of this year.

Market Share

Sales in Fiat’s home market, its biggest, fell for a second month in May, posting an 8.6 percent decrease and bringing the decline this year to 15 percent. However, Fiat gained market share against rivals including Renault SAand Bayerische Motoren Werke AG, helped by government incentives to trade in older cars and as consumers pinched by the economic crisis traded down to smaller, less-expensive models such as the Panda and the Punto.

Moody’s Investors Service estimates that global auto sales will fall 13 percent this year, with the U.S. leading with a 24 percent drop. Vehicle registrations in Western Europe will drop 11 percent, according to the ratings firm’s forecasts

“Despite making headway in realigning supply with demand and improvement in working capital in the first quarter, weak auto volumes, the dismal truck market and inventory build up in the agricultural business will still weigh on free cash flow going forward,” CreditSights Inc. analyst Brian Studioso wrote in a report this week.

Marchionne’s original game plan was to buy General Motors Corp.’s Opel and Vauxhall brands in Europe, and then merge those units with Chrysler holdings and its auto business into a new company that would be publicly traded after an initial public offering. He is pushing for consolidation to reach his goal of selling 6 million cars, the minimum he says is required to be profitable through the economic contraction.

Losing to Magna

German Chancellor Angela Merkel’s government chose Magna International Inc. as the buyer for Opel on May 30 and agreed to provide a 1.5 billion-euro short-term loan aimed at helping the money-losing unit avert insolvency. Germany turned down a competing bid from Fiat.

Marchionne would be wise to spin off the auto business, said Karim Bertoni, who manages $18.5 billion at Banque Syz in Geneva. “This will give value for the auto division and will let Fiat to be better positioned for a future merger or capital increase.” He doesn’t own Fiat shares.

The stock has jumped 70 percent this year in Milan trading, giving the carmaker a market value of 9.4 billion euros. The shares added 36 cents, or 4.9 percent, to 7.79 euros yesterday.

Goldman, UniCredit

Fiat said May 21 that Italy’s top two banks, UniCredit SpA and Intesa Sanpaolo SpA, along with Goldman Sachs Group Inc., were advising the Italian carmaker on the spinoff plan.

To succeed in reviving Chrysler, the No. 3 U.S. carmaker, Marchionne needs to produce top-selling models. The Auburn Hills, Michigan-based automaker’s U.S. sales tumbled by almost half to 1.45 million cars and light trucks last year from 2.73 million in 2000.

Chrysler may begin selling the first Fiat vehicles in as little as 18 months, executives at both companies have said. The combined company will build a new car in the U.S. based on the mechanical underpinnings of Fiat’s Alfa Romeo 149 that hasn’t gone on sale yet. Chrysler also is planning to sell the Fiat 500, a subcompact similar in size to Daimler AG’s Smart minicar.

“I’m very skeptical that an alliance such as this is going to work long-term,” said Erich Merkle, an independent automotive analyst in Grand Rapids, Michigan. “A lot of Chrysler products really aren’t selling very well.”

To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net.

Last Updated: June 10, 2009 18:01 EDT