European car market needs EU-led restructuring -Fiat boss

* No recovery seen next year - Marchionne

* EU-led coordination of capacity cuts needed

* "This is not the time to embrace free trade" - Marchionne

BRUSSELS, Oct 10 (Reuters) - Europe's car market will notreally recover without EU-led coordination of capacity cuts,Fiat and Chrysler Chief Executive Sergio Marchionnesaid, in an apparent back-track on comments he made at the Parisauto show last month.

Marchionne, who also heads European automakers associationACEA, has repeatedly called for Europe-wide action on closingplants and cutting jobs, but has faced stiff opposition fromrival carmakers that are also members of the industry group.

Renault chief Carlos Ghosn said last month he sawzero chance of a government-led restructuring of the industry.

Marchionne, who in July accused Volkswagen ofbeing too aggressive and undercutting competitors, said lastmonth that ACEA's board agreed all members would reach their owndecisions on issues such as plant closures.

However, on Wednesday he said joint action was required.

"I am concerned that if we don't find a collective will toresolve this at a European level this is going to become apermanent crisis," he continued.

ACEA said sales have fallen in Europe for the past fiveyears and new car registrations were likely to be down bybetween 8 and 10 percent this year.

Too many factories making too few cars have hurt companyprofits in Europe, although there is a sharp split, with French,Spanish and Italian producers in the mid-market fightingovercapacity, while German carmakers benefit from higher marginvehicles and healthy exports.

Marchionne, in Brussels to meet EU officials includingIndustry Commissioner Antonio Tajani, believes the EuropeanCommission should coordinate cuts.

"If the French government were to help one specific carmakerand were not to help us or another carmaker, it would breach therules of the European treaties," he said, stressing thatcarmakers were not seeking money or financial support for this.

"It is better left to the European Commission, whose primaryresponsibility is the single market. If it doesn't intervene nowit will violate its obligations to the single market."

The Fiat chief also said the Commission needed to delaysigning free trade agreements (FTA), like the one concluded lastyear with South Korea.

ACEA says the value of car imports from Korea rose 53percent in the 12 months since that deal was signed, while thevalue of EU car exports to Korea fell 4 percent.

ACEA is sceptical about the benefits of a FTA with Japan.

Marchionne said an FTA with the United States would helpFiat and Chrysler a lot, but would probably not be beneficial toother European carmakers.

More broadly he said that the sector needed first to cutcapacity before opening the market up to imports, likening thesituation to having a flooded basement and pumping in more waterwith a garden hose to 'fix' it.

"Let the European car industry make its adjustments... Thisis not the time to embrace free trade," he said.

(Reporting By Philip Blenkinsop and Francesco Guarascio;Editing by Helen Massy-Beresford)

((philip.blenkinsop@thomsonreuters.com)(+32 2 287 6838)(ReutersMessaging: philip.blenkinsop.thomsonreuters.com@reuters.net))

Keywords: FIAT EUROPE/