By William Schomberg and Christian Plumb
MILAN, Jan 27 (Reuters) - Fiat, mourning former chairman and patriarch Gianni Agnelli, has no time to lose as it seeks fresh cash to fix stricken car arm Fiat Auto, analysts and investors said on Monday.
Fiat Auto made an operating loss of about 1.3 billion euros last year, pushing the group into the red, and Gianni's brother Umberto needs to make tough choices quickly when he takes over Fiat's chairmanship, as expected, in coming months, they said.
Gianni Agnelli, 81, died on Friday after months of illness. Although his influence had been on the wane, the passing of the man who turned Fiat into an industrial giant spanning the world will give Umberto, 68, more freedom to deal with its crisis.
Long seen as more open to the idea of selling Fiat Auto to focus on Fiat's other activities like insurance and power, Umberto will first have to raise more cash to keep it afloat. Stockholders are likely to foot some of the bill only a year since Fiat's most recent capital increase.
"If new funds come with an industrial plan, it will be a positive thing, but if it's just another bit of new financing without a plan, it will just be a drop in the ocean," said Marco Vailati, a fund manager with HSBC in Milan.
Vailati said he he had sold out of Fiat completely. "I'm afraid of the impact of a capital increase," he said.
"Fiat management has disappointed for many years. Investors need evidence of what they plan to do different before they give the company more money, and we're talking billions not millions here," said car analyst Arndt Ellinghorst at WestLB Panmure.
AGNELLIS CLAIM THE DRIVING SEAT
Fiat shares were down 1.6 percent at 7.97 euros at 1340 GMT, falling slightly less than the European sector but close to 20 year-lows touched in December after the group was hit with a credit rating downgrade to "junk" status by Moody's.
The stock has now lost virtually all of a 20 percent rally sparked by former Telecom Italia chairman Roberto Colaninno after he drew up a plan to become Fiat's chief executive in return for an injection of cash.
That was always likely to rankle the Agnellis, who have run the group for over a century. Now Colaninno's plan is seen as doomed after the family responded to Gianni's loss with a show of their intent to lead the turnaround push themselves.
Hours after Gianni died on Friday, the members of of the family's privately owned holding company, Giovanni Agnelli & C., rallied round Umberto, nominating him as Fiat's next chairman.
They also proposed a capital injection of 250 million euros for the holding company, money likely to be pumped into Fiat and which could be followed by similar moves by the family's listed family holdings Ifi and Ifil .
Ratings agency Standard & Poor's on Friday said it had cut its outlook on Ifil's credit rating to "negative" from "stable" on concerns it would cough up cash to help Fiat Auto.
Crucially, the Agnellis have so far kept the support of Fiat's creditor banks, which last year provided a three billion euro credit lifeline which also gave them a big say in the group's management.
BOARD MEETING EXPECTED SOON
Fiat's next moves are likely to become a bit clearer after a board meeting which is expected to be called soon.
The most likely scenario sees fresh funds coming from the sale of assets like aircaft engine-maker Fiat Avio and possibly from new financial partners like financier Emilio Gnutti.
General Motors Corp. could also be asked for cash in return for Fiat dropping an option to sell the rest of Fiat Auto to GM, which already owns 20 percent, from next year.
GM looks like the only potential buyer Fiat might find for Fiat Auto, whose share of the Italian market has shrunk from about 40 percent when the two companies signed their partnership in 2000 to under 30 percent now. But any attempt to use the option to force the U.S. group to buy the auto unit could trigger a drawn out legal battle over how much it is worth.
The Italian government has also expressed concern about Fiat falling into foreign hands.
"Everybody is talking about a sale of Fiat Auto but I just can't see a buyer," said a car analyst with an international bank. "The first thing they have to do is inject some fresh capital and if they put in five billion euros, which is what we think it needs, will they rush to sell it? I don't think so."
Laurence Stock, a car market analyst with market analysis firm Datamonitor, said Fiat had begun to address problems at Fiat Auto by moving away from low-profit company car and rental firm deals and focusing instead on its showroom network.
And plans for new cars were promising signs, even if Fiat needed to speed up development. "If you look at Ford and GM, they are bringing out five new models a year or maybe more. Fiat is not taking advantage of niches in the market like them," Stock said. "But they are getting there."