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John L. Russell, Associated Press
Chrysler Group LLC's CEO Sergio Marchionne speaks to a morning session at the annual Center for Automotive Research's Management Briefing Seminar Wednesday, Aug. 3, 2011, at the Grand Traverse Resort and Spa near Traverse City, Mich. Marchionne, also head of Italy’s Fiat SpA, said changes to the internal combustion engine, and not electric or hydrogen fuel cell technology, will be the answer to meeting the standards.

MILAN — Sergio Marchionne's corporate jet has served a sort of mile-high headquarters as the CEO crisscrosses oceans and continents to integrate and expand Fiat and Chrysler.

But the moment is coming, analysts say, when the high-flying CEO will have to choose a fixed center for the global car business he is building.

The process of choosing a headquarters for what would be the world's seventh largest automaker — based on combined 2010 sales of 3.74 million vehicles — is as politically fraught as any Olympic city bid.

If Marchionne picks Italy, there would be howls of protest from Washington, where U.S. taxpayers put up $12.5 billion to keep Chrysler afloat as it headed into bankruptcy two years ago. The Obama administration put Marchionne in charge of the company, betting on a rescue.

Italian officials and unions, meanwhile, have been fretting for months that Marchionne is slowly transforming Italy's industrial showcase into an American company — which not only would be a loss of prestige for Italy but could also move valuable engineering and management jobs out of the country.

"I think there is tension because there are good reasons to locate the headquarters in Detroit, and there are also good reasons to believe the technical heart of the company is in Turin," said Francesco Zirpoli, an expert on Fiat's manufacturing processes and a professor at Venice's Ca' Foscari University.

Marchionne offered few clues to his thinking when he announced last month a new 22-person group executive council and new corporate structure to accelerate integration. He adeptly sidestepped the issue of a legal headquarters by announcing that the car manufacturing business will be divided into four regional centers, representing distinct markets: North America, Europe, Asia and Latin America.

Marchionne, who will remain the CEO of Fiat, will be chief operational officer for North America, including Chrysler.

That move alone drew cries from Italy's FIOM auto union that the "brains" of the operation were moving to Detroit.

"If someone still had doubts, the actual structure demonstrates where the real management center is: It's not Italy," Giorgio Airaudo of the FIOM metalworkers' union said. FIOM has been challenging Fiat for months on new work rules that Marchionne insists are necessary to guarantee production.

Marchionne himself, however, dodged the question Thursday during an annual conference of industry leaders in Michigan

"The group executive council is a traveling band of nomads. It has to be, so it will spend time in Auburn Hills as it will spend time in Turin. It will spend time in Asia and it will spend time in Brazil," Marchionne said. "It needs to be. It's running a four million car business. It needs to go visit and be physically present."

Many analysts believe Fiat and Chrysler eventually will merge fully — something Marchionne claims is not an urgent priority. At that point, it is logical that Fiat will choose a legal headquarters and list the combined company there, to avoid leaking value in two markets.

"If you have one company, let's assume Fiat autos and Chrysler become one company, then if you have two listings in two countries you have a mismatch in the valuation," said Philippe Houchois, UBS auto analyst. "Marchionne has said it himself: It makes no sense to have one asset and two listings."

But the real heart of the company will not be where it is legally listed and traded — but where the main engineering, design and purchasing functions sit.

The new Group Executive Council comprises 13 managers from Fiat businesses and nine from Chrysler.

Fiat's chief technology officer Harald Wester, head of design Lorenzo Ramaciotti and chief manufacturing officer Stefan Ketter will each keep their roles in the new organization.

The key, however, is not whether they originally came from Fiat or Chrysler or even where they spend most of their time, but where they eventually place their support staff, Zirpoli said.

"The GEC will go around the world. They will work on the plane. But then, Wester will have a staff of engineers. Where will they be located?" Zirpoli asked.

That is not immediately apparent.

Despite Fiat's four-continent scheme, experts say it is not realistic to replicate, say, engineering functions in four different locations, or even two. "This would not provide the economies of scale in engineering that you would need," Zirpoli said.

Fiat emphasizes its large-scale operations in Brazil, with 42,000 manual laborers to Italy's 54,000. But the management concentration is far greater in Italy than Brazil: 1,487 to 191.

If Marchionne puts the headquarters in Italy, it would be reminiscent of the 1998 marriage of Chrysler and Germany's Daimler-Benz, the maker of Mercedes cars. Billed as a "merger of equals," that deal quickly became a takeover with Chrysler left as the inferior stepchild that was starved of resources and technology.

Placing the new headquarters in Turin would cause uproar in Chrysler's Auburn Hills offices and many high-tech workers would jump ship as competitors ramp up hiring.

U.S. Rep. Gary Peters, a Democrat whose district includes Chrysler's massive office complex in Auburn Hills, Mich., said Marchionne would have a hard time making a case against the Detroit area because of its wealth of auto engineers, designers and parts supply companies. But the bottom line will be how many jobs remain in Detroit.

"The important thing is the employment in the United States," Peters said.

Across the Atlantic, Fiat has been based in the northern Italian city of Turin for 112 years, a postwar magnet for workers from throughout Italy and a symbol of the nation's industrial miracle of the 1970s. The fate of the nation's biggest employer is of great political concern in Rome, even more so as the country faces austerity measures to keep the debt crisis from engulfing the eurozone's third-largest economy.

"What is most important to me is that the brains remain here. This is the concern of all of the unions, that the innovation and research stay here. If it becomes only an assembly area, then the worry is that it can be moved anywhere," said Italian union leader Maurizo Peverati of the UIL union.


Krisher contributed from Detroit.