MILAN - Fiat SpA's chief executive might swear that he is not trying to build an empire, but he is certainly looking for scale -- on the cheap.

Sergio Marchionne faces a Thursday deadline to close a landmark deal to form a partnership with ailing U.S. car maker Chrysler LLC but he has already shown an interest in Opel, the German unit of General Motors Corp (GM).

News reports also speak about a possible collaboration between Fiat and GM in Latin America, especially Brazil where they both have a strong presence.

If he follows through with this interest and manages to sign deals with both GM and Chrysler, Marchionne would be creating a group of formidable size.

Combining Opel and Fiat, for example, would create the second-biggest car maker in Europe behind Volkswagen AG.

A deal with Chrysler moved closer to completion over the weekend.

The Canadian Auto Workers union approved a new cost-saving deal with Chrysler, while the United Auto Workers union in the United States reached a tentative accord with Fiat, Chrysler and the U.S. government on concessions on a contract and healthcare.

NO MONEY DOWN

Although he might appear to be stretching himself thin by working on two deals at the same time, Marchionne can afford to be ambitious because these transactions would not cost Fiat very much money -- if any at all.

Fiat's Marchionne is looking to surround himself with people who are more desperate than he is, Morgan Stanley analyst Adam Jonas said.

He is looking for deals on the cheap. It fills his criteria in looking for companies that will get state support, Stuart Pearson at Credit Suisse said.

The United States and Germany are as desperate as the two car makers to find a partner for them. They are ready to provide financial support to help keep them in business and save jobs.

Germany is behind an offer of 3.3 billion euros ($4.34 billion) in loan guarantees if GM manages to sell a big stake in Opel.

The U.S. government has offered Chrysler an extra $5 billion if it presents an adequate restructuring plan by April 30. The plan would include a partnership with Fiat.

Under the terms of the proposed partnership with Chrysler, no money is changing hands. Fiat is offering technology to make small cars and access to foreign markets in exchange for entry into the U.S. market and a stake in Chrysler.

The real challenge for Marchionne would come after he signs on the dotted line. It is one thing to join forces to create a bigger group, and quite another to make it work and make money.

Analysts estimate it would take between three to five years for Fiat to see any results -- a long time for a company that is struggling with cash burn at a time when sales are in the dumps.

After more than a year of consecutive quarters of profitability, Fiat had a group trading loss of 48 million euros in the first quarter on lower revenue.

Its net industrial debt rose to 6.6 billion euros from 5.9 billion euros at the end of 2008, and its bond rating is junk. Liquidity improved, but thanks to a drawdown on a loan facility.

DIRT POOR

Faced with the worst crisis in decades, Marchionne speaks of the need for the car industry to consolidate. He argues that the industry had been operating beyond its means and producing far too many cars than the market required.

As a result of the changes to the industry brought about by the crisis, he reckons a car maker needs to make more than 5.5 million units a year to be able to make money.

Fiat makes a little more than 2 million units.

This is an incredibly poor industry ... We have not earned cost of capital, he told analysts on a conference call on Thursday.

Size managed well is good. Size managed for empire building purposes is nonsense. And I have absolutely no intention ... (of) trying to build an empire, he added.

January's preliminary agreement with Chrysler showed how Marchionne wanted Fiat to be a player in the consolidation of the industry and act rather than be acted upon.

Although he declined to say anything on Opel, Marchionne said Fiat would be able to handle talks on two fronts. Few people doubt his ability to do it, given the success he has had in turning Fiat and other companies around in record time.

He's deadline serious, Credit Suisse's Pearson said. They still need scale in the long term to compete with the likes of Volkswagen, Renault/Nissan and Toyota.

Opel was also seen as a ploy used by Fiat in its talks with Chrysler to put pressure on Chrysler's creditors and unions to agree to concessions.

The deals are different because both car makers offer different things to Fiat. Chrysler offers a new market and a product range including sports utility vehicles that Fiat does not have, while Opel offers the possibility to save costs by sharing plants, parts and platforms.

The prospect of cost savings is what worries unions in Italy and Germany because they see them leading to plant closures and job losses.

($1=.7604 Euro)

(Editing by Hans Peters)

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