MILAN, Aug 28 (Reuters) - If industrial group Fiat does not start turning a profit at its core Fiat auto unit by 2004, the group might consider the sale of the loss-making business, Chairman Paolo Fresco said in an interview published on Wednesday.
"Fiat (cars) cannot continue to make losses. Otherwise, in 2004 a choice will have to be made, but we are not there yet," Fresco said in an interview with French magazine L'Expansion.
Fiat, Italy's leading industrial group, is struggling to contain debts after its core auto unit suffered a 19 percent slump in car sales in the second quarter and posted an operating loss of 394 million euros, pushing group net losses to 34 million euros.
General Motors Corp. bought 20 percent of Fiat Auto in 2000 for $2.4 billion in stock. Fiat has a put option to sell the rest to GM beginning in 2004.
"We can sell if we want between 2004 and 2009, but our aim today is to turnaround Fiat Auto regardless of the 2004 deadline," Fresco was quoted as saying.
Fresco said that if Fiat, controlled by the powerful Agnelli family, failed to turn around its car division by then, "radical measures" would be taken and "new management would be needed." The Agnelli could also then sell down its 30 percent stake.
"If the debt owed to banks isn't payed back in 2005, it becomes convertible into Fiat shares," he said. "The Agnellis could then decide to let their stake naturally fall to 20 or 22 percent, or the inverse, see it rise to 40 percent."
As part of its plan to return to profit, Fiat is aiming to raise 3.2 billion euros through the sale of noncore assets as it tries to slash net debt to 3 billion euros by December from 5.8 billion euros at the end of June.
Fresco reiterated that Fiat plans to sell machine tool maker Comau and car parts manufacturer Magneti Marelli.
"These activities are not strategic and will probably leave our company within five years," he said. "The banks want to be certain we cut our debt, not that we sell assets at whatever price."
Fresco said the sale of car-financing unit Fidis "would markedly reduce" Fiat's gross debt to the banks.
In August, Fiat sold the aluminium unit of its Teksid casting subsidiary for a net gain of 290 million euros and at the end of June it sold 34 percent of its Ferrari racing car unit for 775.2 million euros.
Fiat Auto, which includes the Fiat, Lancia and Alfa Romeo brands, had an operating loss of 394 million euros in the second quarter, down from a year-earlier profit of 19 million euros, but an improvement on first-quarter losses of 429 million euros.