Fiat SpA's chief executive, facing a two-week deadline to work out a partnership with Chrysler LLC, warned the troubled U.S. carmaker's unions he would ditch the idea unless they agreed to cut labor costs.

In a clear message to U.S. and Canadian unions, Sergio Marchionne told Wednesday's Globe and Mail newspaper a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders.

Absolutely we are prepared to walk. There is no doubt in my mind, Marchionne said in an interview posted on the Toronto newspaper's website.

The Chrysler unions had to agree to match the lower labor costs of plants run by Japanese and German carmakers in the United States and Canada, he said, adding that Canadian unions were especially resistant to the idea.

Nomura analyst Michael Tyndall said Marchionne was probably not bluffing in talking tough with the unions.

He's playing hardball, he said, adding that the unions' position would make the deal too costly for Fiat. We want them (Fiat) to walk away ... I don't see any benefits in this deal.

Under the latest version of the proposed partnership, first announced in January, Fiat would take an initial 20 percent stake in Chrysler in exchange for the technology to make small cars and access to foreign markets.

The two carmakers are under pressure to reach a deal on the proposal with Chrysler's unions and bondholders before an April 30 deadline set by the U.S. government.

Chrysler has been warned by Washington that it would go into bankruptcy if it fails to complete the deal, designed to save the smallest of Detroit's Big Three car makers.

But its lenders have so far refused efforts to eliminate most -- if not all -- of the $7 billion owed to them.

If a deal is reached, Chrysler would get at least $6 billion in extra government funding, having received $4 billion so far.

Fiat would get access to the U.S. market and gain the scale it needs to survive the worst industry crisis in decades. It would bring to North America its popular Cinquecento (500) car next year, while its premium Alfa Romeo brand would make cars in Canada or the United States, Marchionne said.

WHATEVER IT TAKES

Short of having Fiat inject cash into Chrysler, Marchionne vowed to do whatever it took to save the U.S. carmaker, including becoming chief executive.

Fundamentally, that's possible, but the title isn't important, he said. What's important is that they hear me.

He expected some of Chrysler's plants to close under the partnership.

The newspaper said Marchionne would not offer odds on a bankruptcy, other than to say that a filing for Chapter 11 bankruptcy protection was an option in the absence of a partnership agreement. He did not rule out a Chapter 7 liquidation filing, it said.

At 1102 GMT (7:02 a.m. EDT), Fiat shares were up 2.41 percent at 7.01 euros. The DJ Stoxx auto index was down 1.12 percent.

(The market) liked it because he reiterated that Fiat would not take out any money, said one Milan dealer.

Many analysts still think the partnership will eventually cost Fiat money even if the terms of the deal do not oblige it to put up any cash.

U.S. private equity firm Cerberus Capital Management owns 80.1 percent of Chrysler and Germany's Daimler AG 19.1 percent.

(Reporting by Gilles Castonguay; Editing by David Cowell, John Stonestreet)

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