Alfa Part of Rumored Fiat-Audi Discussions, Sources Say

TURIN – Alfa Romeo is at the core of top-level negotiations between Audi and Fiat and might be near to a sale, reliable sources here and in Ingolstadt, Germany, say.

Sources close to both Fiat CEO Sergio Marchionne and Audi CEO Rupert Stadler confirm the two are in talks over a major deal.

The top subject reportedly involves the sale of Alfa, but this time not only the brand but Fiat’s Pomigliano assembly plant also is on the table.

If the discussions bear fruit, the facility would return to building Alfas under Audi. Pomigliano was built in the late 1960s specifically for Alfa production, but currently makes the Fiat Panda.

Discussions between the two auto makers also could veer toward a sale of Fiat’s Magneti Marelli auto parts unit.

Marchionne has signaled a willingness to part with Magneti Marelli as a way to raise cash, and Audi has said it would like to acquire a components manufacturer and establish a new research-and-development arm in Italy, where it now has a considerable stake.

The German luxury-vehicle maker already owns Italian exoticar builder Lamborghini and motorcycle maker Ducati. Its portfolio in the country also includes styling center Italdesign-Giugiaro, acquired in May 2010.

Neither of the auto makers would confirm the rumored talks.

"We do not comment on speculative rumors," Fiat spokesman Richard Gadeselli says here.

Ingolstadt-based Audi spokesman Juergen De Graeve says, "There is no substance in the news.”

Marchionne repeatedly has said Alfa Romeo is not for sale, and he focused more attention on product for the brand in a recovery plan he rolled out in January. At a presentation of the strategy to the media, Marchionne said Fiat would focus on its premium brands, with eight new and one restyled model planned for Alfa by 2016.

But Fiat needs to start implementing those product plans, factory upgrades and improvements to its sales networks, and the tough European market climate could be making that difficult.

In addition to financing new models, Marchionne likely is eager to complete the takeover of Chrysler in the U.S., which hinges on purchasing shares held by the United Auto Workers union’s Voluntary Employee Benefit Assn. The value of that stake is a point of contention between Fiat and the VEBA.

Selling Magneti Marelli would cause little drama with unions in Italy. That wouldn’t be true with a sale of Alfa Romeo, which would draw heat from government leaders, unions and most other Italians.

But if Marchionne could persuade Audi to take the modern and efficient Pomigliano d'Arco plant along with Alfa Romeo, he might be considered a hero here. And if the price is right, it might ensure a better future for the newly born Fiat-Chrysler.

Alfa Romeo’s future could be brighter under Audi and Volkswagen Group, as well, some analysts believe.

Time is running short for Marchionne in his dealings with the VEBA, which has moved on with its request for an initial public offering of its minority, yet significant, 41.5% stake in Chrysler as a way to sell its shares at a fair price.

The recently delayed ruling by a Delaware Chancery Court on the fair price for the first two call-options (for a 3.32% stake each) on Chrysler shares likely keeps Marchionne awake at night. Chrysler has the right to buy 3.3% stakes from the VEBA every six months, assuming the two can agree on the price.

Early this month, he told reporters Fiat was willing to settle the case before the judge rules on the stock’s worth. Without a deal, Fiat risks the court attaching a higher price to the stock than it is willing or able to pay.

Considered even worse for Marchionne is the risk the VEBA could succeed in launching an IPO before Fiat can gather the cash it needs to take full control of Chrysler.

Only with 100% of Chrysler's shares will Fiat have the freedom it wants to run the U.S. arm as it pleases.

Whether Fiat needs the extra $2 billion or so it might draw for the Pomigliano d'Arco plant and Alfa Romeo depends on where Chrysler’s stock price settles and the amount of money Marchionne requires to finance both his industrial investments in Europe and corporate grand design across the Atlantic.