Big time

Frankfurt, Sept. 8 (Reuters): Italy’s Fiat and US automaker Ford Motor are in advanced talks to co-operate on developing a small car, a person familiar with the matter said on Thursday, confirming an earlier report.

German newspaper Handelsblatt cited sources close to the negotiations as saying the two were holding discussions, with one source quoted as saying: “The talks are already far along.”

Italy’s leading auto magazine, Quattroruote, said they would collaborate on the new version of Fiat’s iconic Cinquecento and Ford’s tiny Ka.

Ford and Fiat, known for their small cars, did not comment.

Earlier this week, the head of the Fiat brand, Luca De Meo, said the new Cinquecento, due out in 2007, would probably be made on the same platform as the Fiat Panda mini.

It is due to be built in Fiat’s Polish plant, where labour costs less than in Italy ? a vital saving in a segment of the market where margins are already razor thin and carmakers are teaming up to save on development costs.

The Polish plant already makes the Panda and 600 other models.

Fiat has long said it wants to work with other carmakers on specific projects to reduce risks and cut costs, part of a plan to return to profit by 2007. The 106-year-old carmaker argued it had not been able to strike competitive deals when it was tied up in a partnership with General Motors. But that was dissolved in February and, on Tuesday, Fiat CEO Sergio Marchionne said he hoped to strike a new industrial alliance by the end of the year.

Marchionne said the new partner would not be Asian and that the alliance would not include financial stake swaps, but he declined to specify.

Fiat already has a joint venture with France’s PSA Peugeot Citroen to make vans and together the two have a deal to make the vehicles in Turkey with carmaker Tofas. Fiat has also co-developed a sports-utility vehicle with Suzuki, due out at the end of the year or in early 2006.

An alliance in small cars would make sense. Competition is fierce. PSA and Japan’s Toyota make small cars together in the Czech Republic, Volkswagen imports its Fox model from Brazil and GM sells South Korean-made Chevrolets to serve the small end of the market.

Some analysts had thought DaimlerChrysler’s loss-making Smart unit might be a logical partner for Fiat, but DaimlerChrysler ruled out any industrial alliance on Wednesday.