By Madeline Chambers, European Auto Correspondent
FRANKFURT, June 25 (Reuters) - Loss-making Italian carmaker Fiat Auto will unveil a new recovery plan this week but many experts are already predicting its demise and say PSA Peugeot Citroen and Korean manufacturers may benefit the most.
Once Europe's biggest automaker, Fiat's car arm risks sharing the same fate as the now defunct British Leyland and analysts say the strategy to be announced on Thursday has little chance of halting a march to eventual oblivion.
"I don't see Fiat (Auto) disappearing overnight, not least because no one wants to acquire it and the Italian government won't let it suddenly go under, but we may see a fairly rapid decline and its demise certainly benefits the rest," said Graeme Maxton of UK consultancy Autopolis.
Shunned by international investors last year as the company lurched through its worst ever crisis, Fiat shares may get a short-term boost from the new plan, and the company said in May it was confident of a "real change" by early next year.
But the long run will be tough in a sector plagued by measly profit margins, overcapacity and sliding demand and where the number of players has dwindled to 12 from 52 in 40 years.
"Fiat is a failing national car company and it is very very difficult to find a way back from that situation," said Karel Williams, a motor industry researcher at Manchester University.
Most analysts say its Fiat and Lancia brands have little appeal left and, with the Ferrari sports car business excluded from Fiat Auto, the sporty Alfa Romeo marque has most potential. If Fiat is willing to sell, the Alfa brand could get snapped up, they say.
General Motors Corp , which owns 20 percent of Fiat Auto, may benefit from manufacturing economies and increased market share whether it is forced to buy the rest or not, but rival makers of small cars also stand to gain.
PEERS TO GAIN
European automakers are producing more cars than people want. That problem would be alleviated if Fiat Auto, whose plants operated at 65 to 70 percent of their capacity in the first quarter, were to trim production further. Last year alone, Fiat laid off 15,000 workers in a bid to cut costs.
"They may take out some capacity and given there's 20-25 percent too much in Europe, that will help overall," said Maxton.
Fiat's production has already fallen 25 percent since 2000 as demand for its models slumped and its market share hit a record low. It is now Europe's sixth-biggest carmaker.
Despite plans for fresh models, experts say peers will keep stealing sales from Fiat even in Italy, Europe's third-biggest auto market, where traditional brand loyalty is waning.
In the last year, France's PSA Peugeot Citroen , led by its lower-margin Citroen brand, has stolen more of Fiat's market share then any other firm. Experts say that trend will continue.
"PSA is a successful version of Fiat, making relatively cheap and cheerful cars," said Manchester University's Williams.
Korean and Japanese automakers are also likely to gain.
"A company like Hyundai is a serious threat to the European order, especially in the A and B (small car) segments where Fiat is traditionally strong," said Mark Fulthorpe of auto industry forecaster CSM Worldwide.
He argues that the failure of the Stilo model, which was supposed to take Fiat up-market and boost its fortunes in the mid-sized C segment, means it must now retrench and focus on small cars suited to narrow Italian streets, which is just where Korean rivals are most threatening.
In any case, the 2.5 billion euros a year earmarked by Fiat for 20 new models until 2005 does not seem enough to compete, industry experts say.
If Fiat exercises its option to sell the remaining 80 percent of its car arm to GM from next year, Fiat Auto would become a fairly insignificant part of the world's biggest carmaker's sprawling empire.
GM produced 8.3 million vehicles last year while Fiat made about two million.
Even if GM takes Fiat Auto under its wing, Fiat may live on as a brand, but few analysts expect it to survive as a fully-fledged manufacturer in its own right.
Fulthorpe said he expected a migration of Fiat products to GM-led platforms with Fiat keeping only some of its manufacturing activities.
"We think GM is the stronger partner and Fiat does not have enough money for its product development so irrespective of the final equity position the only logical way forward for Fiat is to continue to develop vehicles with GM," he said.