The global auto industry needs a dose of humility and a remedial lesson in business fundamentals, says Fiat SpA CEO Sergio Marchionne in an impassioned defense of Fiat Auto Group’s pursuit of a Chrysler LLC tie-up.

The straight-talking executive, who says only that the two auto makers are making progress in their negotiations, also dismisses reports Fiat has designs on establishing an industry empire. A deal, if completed, would see Fiat and Chrysler form the world’s sixth-largest auto maker.

Fiat has “absolutely no intention” of expanding its reach for conquest alone.

“Size managed well is good,” Marchionne says in a first-quarter earnings teleconference. “Size managed for empire-building purposes is nonsense… We’re trying to drive an argument purely based on industrial efficiency. It is the only thing I care about.”

Meanwhile, he deflects questions about news reports that say Fiat is exploring the acquisition of Adam Opel GmbH from General Motors Corp. which, like Chrysler, frantically is restructuring in a bid to satisfy terms of last-ditch government financing designed to stave off bankruptcy.

“I’m intent on closing the Chrysler deal,” Marchionne says. “Chrysler is on the table, and Chrysler is my first and foremost objective.”

Fiat and Chrysler have agreed on a framework that would see Chrysler acquire immediate access to vehicle platforms and powertrain products developed by the Italian auto maker. Such access is expected to give Chrysler a competitive boost by transforming, at reduced cost, its truck-heavy lineup into one that features a variety of smaller, fuel-stingy vehicles.

In return, Fiat will acquire an initial 20% stake in Chrysler that will grow to 35% as the auto maker achieves specific profit targets. Fiat also would have an option to acquire, over seven years, an additional 16% share.

But the Italian auto maker would be restricted from acquiring majority control until Chrysler repays its loans from the U.S. Treasury Dept.

Marchionne sternly rejects the notion Fiat should be compelled to make a financial commitment to Chrysler. “That’s not our role,” he says, claiming Treasury officials now agree Fiat’s technology contribution represents sufficient value to warrant the proposed equity swap.

Marchionne was in the U.S. this week to meet with Chrysler and government officials.

However, he is quick to note Fiat is willing to “commit cash at the relevant time,” referring to capital investments that portend benefit to the Italian auto maker.

Against this backdrop, Chrysler races to comply with other terms of the proposed $6 billion in loans it hopes to get from Washington. The aid package is contingent on the conclusion, by May 1, of concession talks with bondholders and the United Auto Workers union.

Reports say Treasury has asked Chrysler lenders to forgive some $7 billion in debt for $1.5 billion in first-lien debt and a 5% equity stake in a restructured Chrysler. Washington previously slammed the door on a request for $4.5 billion of first-lien debt and a 40% equity stake.

Talks between Chrysler and the UAW are continuing, but no deal appears imminent.

A parallel set of labor talks continues in Canada with the Canadian Auto Workers union. The Canadian federal government and the province of Ontario had promised C$1 billion ($814 million) in financing if Chrysler could reduce, by today, its all-in labor costs by $19 per hour.

The CAW has resisted this demand, but the two sides remained at the bargaining table after the governments extended their deadline.

Declining volumes are blamed for a first-quarter E30 million ($39 million) operating loss recorded by Fiat Auto’s core-brand operations, a swing of E223 million ($292 million), compared with like-2008’s E193 million ($252 million) operating profit.

The picture improves when the auto maker’s upscale brands are factored into the results. Including the E54 million ($71 million) and E3 million ($4 million) contributed by its Ferrari and Maserati brands, respectively, moves Fiat’s automotive operations into the black with a E27 million ($35 million) profit. But that still represents a E235 million ($307 million) plunge from first-quarter 2008’s E262 million ($343 million) total.

Underscoring 2008 cost cuts that eliminated 8,500 salaried workers, as well as the rotating plant shutdowns Fiat continues to employ at its plants in Italy, France, Spain and Germany, Marchionne reminds, “This is an incredibly poor industry.”

And, he adds, stakeholders would do well to live like monks.

“The notion of poverty, of living in a very Franciscan way, going forward, is a good thing,” Marhcionne says, suggesting Wall Street’s overindulgence in debt-financing should serve as a warning. “We should live within our means. The financial services industry, with all its benefits, has really allowed the car guys to obscure the fundamental industrial issues that impact car making.

“We need to go back to making cars and making money making cars. It’s not complicated.”

What is Fiat’s role in reversing the economic mailaise that has gripped the global industry?

“We have an obligation to try and manage this process,” Marchionne says. “We may not be the biggest, but we need to help this industry out of this, including Fiat. And if we can be the conduit for that change, I’m quite willing to do this.”

emayne@wardsauto.com