Fiat-GM plan to span Europe, South America, Africa

By Gilles Castonguay and Maria Sheahan

MILAN/FRANKFURT (Reuters) - Fiat SpA plans to create an automotive empire spanning Europe, South America and Africa in a redrawing of the global industry as the market downturn hurts major players around the world.

The Italian carmaker aims to merge its car business with General Motors' European brands, Opel, Vauxhall and Saab, as well as its South American and South African operations, according to a copy of the proposal obtained by Reuters on Thursday.

Fiat, which presented the plan, dubbed Project Phoenix, to the German government on Monday, said in the proposal that it aimed to "ultimately remain as one of the 5 or 6 surviving entities in the global automotive market place."

Fiat is trying to survive the global economic downturn by building up its size rather than selling assets. If it manages to reach a deal with GM, it would create the world's second-largest automaker after Toyota.

Fiat shares closed down 5.2 percent at 7.47 euros in Milan while GM's shares were down 4.2 percent at $1.59.

The merger would come at the price of a few plant closures and downsizing of some factories. The slides showed estimated restructuring costs of up to 500 million euros ($666.1 million) to cut headcount in Europe.

GM Europe has said it needs to cut costs by $1.2 billion to return German brand Opel to profit by 2011. It has also said it needs 3.3 billion euros in state aid from European governments to avert job cuts and site closures.

Fiat's move has met opposition both in Germany and in its Italian home market. German labor unions favor a bid by Magna International, an Austrian-Canadian car parts manufacturer that has expressed interest in German unit Opel.