* 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 not really recover without EU-led coordination of capacity cuts, Fiat and Chrysler Chief Executive Sergio Marchionne said, in an apparent back-track on comments he made at the Paris auto show last month.
Marchionne, who also heads European automakers association ACEA, has repeatedly called for Europe-wide action on closing plants and cutting jobs, but has faced stiff opposition from rival carmakers that are also members of the industry group.
Renault chief Carlos Ghosn said last month he saw zero chance of a government-led restructuring of the industry.
Marchionne, who in July accused Volkswagen of being too aggressive and undercutting competitors, said last month that ACEA's board agreed all members would reach their own decisions 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 to resolve this at a European level this is going to become a permanent crisis," he continued.
ACEA said sales have fallen in Europe for the past five years and new car registrations were likely to be down by between 8 and 10 percent this year.
Too many factories making too few cars have hurt company profits in Europe, although there is a sharp split, with French, Spanish and Italian producers in the mid-market fighting overcapacity, while German carmakers benefit from higher margin vehicles and healthy exports.
Marchionne, in Brussels to meet EU officials including Industry Commissioner Antonio Tajani, believes the European Commission should coordinate cuts.
"If the French government were to help one specific carmaker and were not to help us or another carmaker, it would breach the rules of the European treaties," he said, stressing that carmakers were not seeking money or financial support for this.
"It is better left to the European Commission, whose primary responsibility is the single market. If it doesn't intervene now it will violate its obligations to the single market."
The Fiat chief also said the Commission needed to delay signing free trade agreements (FTA), like the one concluded last year with South Korea.
ACEA says the value of car imports from Korea rose 53 percent in the 12 months since that deal was signed, while the value 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 help Fiat and Chrysler a lot, but would probably not be beneficial to other European carmakers.
More broadly he said that the sector needed first to cut capacity before opening the market up to imports, likening the situation to having a flooded basement and pumping in more water with a garden hose to 'fix' it.
"Let the European car industry make its adjustments... This is not the time to embrace free trade," he said.
(Reporting By Philip Blenkinsop and Francesco Guarascio; Editing by Helen Massy-Beresford)
Keywords: FIAT EUROPE/