May 7 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne is setting out to build a pan-European car company from the rubble of the U.S. auto industry.

The car industry is in turmoil, and Marchionne, the 56-year-old deputy chairman of UBS AG, says he sees opportunity. He’s taking over Chrysler LLC after a U.S.-arranged bankruptcy and seeking to incorporate units owned by General Motors Corp., including three European brands, Opel, Vauxhall and Saab, and some Latin American operations.

“The sector produces 90 million vehicles against a demand of 60 million,” Marchionne said in an interview yesterday. “This overcapacity has to be managed and the American approach proved to be very efficient,” he said, referring to the U.S. administration’s readiness to lend $23.9 billion to Chrysler and GM on the condition that they cut costs.

Blending automakers to gain scale and geographic scope has been tried before. Chrysler and Daimler AG split up after a decade together. Carlos Ghosn “has had a hard time running Renault and Nissan,” as CEO of the allied automakers, said Tom Stallkamp, a former Chrysler president who is now a managing partner at Ripplewood Holdings LLC.

“Chrysler is going to be a full-time job in itself,” said Stallkamp, who warned that financing such a sprawling company will be difficult. “On paper, this probably makes sense, numbers wise, but it’s a cultural and logistical nightmare to make it all work.”

New CEO

For Marchionne and Turin, Italy-based Fiat, it’s a chance to save Chrysler, rescue Saab and pick up Opel to assemble a 6.8-million vehicle per year auto company.

“Chrysler is on track to re-emerge from bankruptcy in 60 days,” he said. “I will become Chrysler CEO after that.” The idea has been discussed in meetings with the Treasury, he said.

Saab is another matter. The Swedish carmaker sought protection from creditors Feb. 20 after General Motors Corp. said it would sever ties with the unit by 2010 as part of its own reorganization.

“Saab is an interesting opportunity, the brand is, however, too small for the auto mass market,” Marchionne said. “We could combine Saab with another brand. In the U.S., there’s a Saab dealership network. It would be a pity to give that up.”

He has said that a global auto group needs 5.5 million to 6 million vehicles annually to have the economies of scale to compete.

Visiting Michigan

Marchionne flew to the U.S. on May 5 from Germany, where he held talks with government officials about his interest in creating a pan-European automotive company. He’s traveling with a contingent of 22 Fiat engineers and managers.

Marchionne will meet again today with Chrysler executives to work out merger details with the Auburn Hills, Michigan-based company.

“My goal is to sell the first Fiat 500 in the U.S. by the end of 2010,” Marchionne said.

“We’ve already said we’ve had 10 candidates in Sweden,” Eric Geers, a Saab spokesman, said yesterday. “If Fiat is joining, that’s just for the better.”

Marchionne said his discussions about Saab, Opel and Vauxhall are being held with GM.

“We’ve had positive discussions with several different parties,” said Chris Preuss, a GM spokesman, declining to identify interested parties.

Other Parties

Other parties interested in Opel include Magna International Inc. and Russian carmaker OAO Gaz, sovereign wealth Funds Abu Dhabi Investment Council and the Government of Singapore Investment Corp. and three private-equity funds, according to one person close to the situation.

Marchionne also said Fiat is interested in an as-yet- undefined venture with GM in Latin America and ruled out the Turin, Italy-based automaker’s interest in GM operations in Russia and China.

A combination of Fiat, Chrysler and GM’s European operations would generate 80 billion euros in annual revenue, Fiat’s board said in a statement Sunday.

Fiat’s plan to produce a pickup in Argentina, announced in 2007, with technology from India’s Tata Motors Ltd. didn’t materialize, because Tata’s truck was wrong for that market, he said.

“We have solved the issue with Chrysler’s Dakota pickup model,” he said.

No Cash

Marchionne ruled out spending any cash to combine Fiat with Chrysler and GM Europe.

“I’m ready to offer 100 percent of Fiat’s auto unit -- clean of debt -- and assume Opel’s debt,” he said.

The new auto group would be independent from Fiat SpA, which would keep commercial-truck maker Iveco SpA, CNH Global NV, the maker of agricultural and construction equipment, and luxury-car brands Ferrari and Maserati.

GM needs a partner to run Opel, maker of the compact Astra and midsize Insignia sedan, before June 1 or the German unit faces bankruptcy, its top labor leader said last week. GM is trying to cut $1.2 billion in costs and win European aid to keep the unit operating.

“Including GM Latin America in the deal would be the easiest way to add value to the transaction,” Marchionne said. He said GM is trying to preserve its interest in Latin America, while the two companies are in talks on how to value each other’s units. “We are still working on that. That’s why we need bankers.”

He said that Citigroup is the frontrunner to advise Fiat on its GM talks, rather than UBS, which handled the Chrysler deal.

Back to Germany

During this trip Marchionne won’t hold meetings with GM or visit Washington as originally scheduled. He is flying back to Germany today to pursue his pan-European vision.

He will need to reduce overall production with inevitable job cuts should he manage to bring all the units together.

“We would need to reduce the number of plants that could potentially be closed by making them more efficient, while keeping the flexibility to restart them when demand picks up,” Marchionne said.

“For sure there will be a reduction of the headcount because volumes don’t support it,” he said, declining to be more specific.

His plan is to sell shares of the future auto group with an initial public offering in Milan and Frankfurt.

To succeed, Marchionne needs to gain the support of the German government and unions. Opel worker representatives have repeatedly ruled out an agreement with Fiat, Italy’s biggest manufacturer. Employees have a say in the process as GM’s rescue plan for the European unit calls for workers to make concessions.

Marchionne said that his proposal is “a unique opportunity” Europe shouldn’t miss and that he is not looking for an alternative plan in case talks with GM fail.

“If Europe doesn’t like our plan we will be happy to continue the job we are doing in the U.S. with Chrysler,” Marchionne said. “I’m already very busy.”

To contact the reporter on this story: Serena Saitto in Southfield, Michigan, at ssaitto@bloomberg.net

Last Updated: May 7, 2009 00:06 EDT