GENEVA – “Fiat will weather the storm” in Europe caused by price wars born from overcapacity because of its association with Chrysler, Fiat and Chrysler CEO Sergio Marchionne says during a roundtable discussion with journalists at the auto show here.

However, he warns, Europe must prevent its nations from protecting their local factories at the cost of dysfunction across the industry.

Without mentioning them, Marchionne refers to governmental actions taken during the 2008-2009 global economic crises, such as vehicle-scrapping programs and special loans that kept volumes higher than they would have been. Such protective measures ended up prolonging the recessionary effect in the region and did nothing to solve its 20% overcapacity.

“To the extent that we have as a primary objective of the European Union to have and manage a single market, anytime you get natural interference with it, you end up getting a very partial and dysfunctional thing,” he says.

Marchionne’s answer is to spread the pain and suffering of closing plants across all the EU member states. So far, he says, Europe has not responded, and he doesn’t think it will in the short term.

Instead, auto makers are offering big discounts on their popular small cars, resulting in “horror stories about the pricing in the B-segment in Europe,” Marchionne says. “And I can tell you based on the numbers that I have seen, we are not even recovering the variable costs. This market cannot continue.”

He points to a parallel situation in the U.S. in 2007 and 2008, when sales were boosted to record levels partly by heavy discounts. “Chrysler was selling cars with $8,000 checks attached to the hood. You can’t keep that up for long, You’re going to go bankrupt.”

Ironically, Chrysler now is saving Fiat. Not only is it growing fast and making money, Marchionne says, but Chrysler also has the background to make bigger cars and powertrains that Fiat brands such as Alfa Romeo need to compete.

As a result, Alfa now has the architecture needed to return to the U.S., and there will be no problem with distribution thanks to Chrysler. The only thing left is to create the right powertrain for Alfa’s DNA, “and we’re working on that,” he says.

Alfa aims to sell 400,000 vehicles in 2015, Marchionne says. In order to do so, the brand will add new products to a range now occupied only by the MiTo and Giulietta.

However, Fiat has no plans to return to the D-segment because the brand won’t stretch that far. “The 500 and Panda are at the heart of Fiat,” he says.

Except for China that is, where Fiat will get a rebadged version of the Dodge Dart in the third quarter. China is a young market, Marchionne says, and Fiat doesn’t have the same heritage there as in Europe.

Meanwhile, Chrysler is the fastest-growing brand in the U.S., he claims. “Quality is up in the three years that we have been there, and it is not very far from the target of coming back as a reputable player. We have all the DNA of respectability in our house.”

After the Dodge Dart goes into production April 1, Chrysler group will have “an onslaught of products in 2013,” and all will have improved mileage, Marchionne says. The auto maker already has six cars achieving better than 30 mpg (7.8 L/100 km) now, he adds, noting it had none when Fiat invested in the company.

“The goal this year is for Chrysler to sell 2.4 million vehicles, a 20% increase over last year; I watch these numbers like a hawk,” Marchionne says. To meet that goal, the auto maker must sell 200,000 units a month, but he can imagine doing better than that.

Responding to a question, Marchionne says he has not talked with Volvo about a partnership on a small-car platform, but Fiat is involved in many discussions with other auto makers on various projects. However, most of those will not turn into anything.