Ever since Sergio Marchionne snuck in to see the “The Graduate”as an underage teen in the 1960s, he's had a soft spot for AlfaRomeo, the maker of the Spider Duetto convertible Dustin Hoffman'scharacter drove in the film.

Four decades later, Marchionne is the chief executive officer ofAlfa Romeo's parent Fiat SpA and wants to return the strugglingbrand to its former glory. To pull it off, he needs cash fromFiat-controlled Chrysler Group LLC. The problem is that he hasn'tfound a way to get it, as a union trust that owns the remainingshares of Chrysler holds out for at least $1 billion more than theCEO wants to pay.

Unlocking Chrysler's $12 billion piggy bank is about more thanjust refreshing Alfa Romeo and fulfilling the dreams of a “youngidiot,” as Marchionne, 61, called himself as a teenager in Canada.Fiat's ability to recover from losses in Europe depends oncombining with Chrysler and accessing the American company'sresources to fund long-delayed new vehicles and stop a downwardspiral in its home region.

“Marchionne is facing the most difficult moment since Fiat tookover Chrysler,” said Giuseppe Berta, a professor at BocconiUniversity in Milan. “He's in a hurry to complete the merger assoon as possible to invest in new models in Europe.”

Production Delay

Alfa Romeo has long been a cornerstone of Marchionne's strategyfor Fiat. The plan is to transform the 103-year-old Italiancarmaker, which currently sells only two hatchbacks and a smallsports car, into a global upscale brand to spin off profits similarto the way Audi does for Volkswagen.

The effort has failed to make much progress as Marchionne putspending at Fiat on hold to conserve cash amid Europe's six-yearslump and focused instead on turning around Chrysler after rescuingthe manufacturer from bankruptcy in 2009.

Fiat will likely delay two new Alfa Romeo models that wereplanned for next year to 2015, according to two people familiarwith the matter, who asked not to be identified as the matter isprivate. The Italian carmaker may finalize plans by the firstquarter of 2014 to build new Alfa Romeos at the Cassino factory insouthern Italy, the people said. A Fiat representative declined tocomment.

The lack of investment has caught up with Fiat. Burdened bystruggles in Europe, the Turin, Italy-based company posted a lossof 482 million euros ($653 million) in the first half, excludingChrysler. The group, including Alfa Romeo and the namesake brand,sold fewer cars in its home region last month than both the luxuryAudi and BMW brands, even though Fiat is a mass-marketmanufacturer.

“Marchionne does things well at Chrysler and badly at Fiat,”Volkswagen AG Chairman Ferdinand Piech told Bloomberg News duringan event in Vienna this month. Based on its current performance,Fiat “isn't capable of surviving” on its own, said the executive,who has publicly sparred with Marchionne and has expressed interestin taking over Alfa Romeo in the past. Fiat declined to comment onPiech's remarks.

The company, which reports third-quarter earnings and plans togive an update on targets on Oct. 30, is expected to report 2013operating profit of 3.81 billion euros, according to estimates of11 analysts surveyed by Bloomberg. That would miss Fiat's forecastof 4 billion euros to 4.5 billion euros.

The carmaker's struggles in Europe have hit plans for AlfaRomeo. Last year, Marchionne scaled back a mid-term sales targetfor the brand by 40 percent. Fiat now forecasts sales of 300,000Alfa Romeo cars by 2016, compared with a 2010 forecast for 500,000autos by 2014.

The brand is due to miss even the lowered goal by 36 percent.IHS Automotive estimates that Alfa Romeo will deliver 81,000vehicles next year and 192,000 in 2016. Audi, VW's biggest profitcontributor, sold 1.18 million cars in the first nine months ofthis year.

“If Marchionne really wants to relaunch Alfa Romeo, he needsChrysler's cash,” said Bocconi's Berta, who was the former directorof Fiat's archives. “The carmaker has to invest billions of eurosin the brand, as VW did with Audi.”

Fiat intends to boost total investment by at least 1 billioneuros next year, to as much as 9.5 billion euros. The higherspending is part of the development of about 19 new models inEurope in the next three years, including eight Alfa Romeos. Thatwould be tough for the Italian company to finance without help fromChrysler.

“Fiat needs to generate cash to invest in new models and becompetitive, but the cash flow they're generating is not enough,”said Falk Frey, a Frankfurt-based analyst at Moody's.

Cash Burn

Fiat is due to burn through about 1.3 billion euros in cash thisyear, according to estimates from analysts at Sanford C. Bernstein.Chrysler targets adding $1 billion to its coffers.

Pooling cash with Chrysler would boost Fiat's financingpotential and is a key driver behind Marchionne's push to buy theremaining 41.5 percent stake from a United Auto Workers' retireehealth-care trust. The union fund is requiring Chrysler to preparefor an initial public offering as it feuds with Fiat over thestake's valuation.

The lure of Chrysler's cash could lead Fiat to pay a price thatrequires it to sell new shares to fund the deal, Barclays analystsincluding Kristina Church said today in a report.

Even if the two sides agree on a deal and avoid an IPO, Fiatwouldn't have full access to Chrysler's cash because of covenantson some of the American carmaker's debt, which restrict use of thecompany's funds. Chrysler Chief Financial Officer Richard Palmersaid in July that buying back the debt wouldn't make sense before2015 at the earliest.

Still, Alfa Romeo isn't totally at a standstill. The brand hasstarted taking orders for the 4C sports car, which will hit U.S.showrooms as soon as April next year, as part of a plan to returnto North America after an absence of almost 20 years.

Alfa Romeo will also make a modern version of the roadster thatDustin Hoffman's wayward graduate drove in the 1967 film. The carwill be built in cooperation with Mazda Motor Corp. and hitshowrooms in 2015. Alfa Romeo CEO Harald Wester sees cause foroptimism.

“I can just tell you that I expect demand for the 4C to exceedplanned production,” Wester, who is also in charge of Maserati'splan to boost sales eightfold by 2015, said in Milan this week,declining to elaborate on the brand's broader plans.

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