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UPDATE 2-Iveco says has no plans to leave Fiat

(Writes throughout with details)

By Daniel Flynn

MADRID, Jan 16 (Reuters) - Fiat-owned Iveco said on Thursday it had raised its market share during a difficult year in 2002 and that Italy's ailing industrial group had no plans to sell the truck maker.

Chief Executive Michel de Lambert said Iveco, which contributed almost 15 percent of Fiat's revenues in 2001, had raised its share in the light, medium and heavy truck segments of the market despite a sharp contraction in the industry.

"We are basing our 2003 budget on the fact that the market will continue to drop further. Not a lot, but it will drop," de Lambert told Reuters in an interview, adding that a recovery in sales was not expected until 2004.

De Lambert, in Madrid to receive the 2003 "Truck of the Year" award for Iveco's new Stralis heavy truck, said Iveco was cutting its development expenditure after spending 1.0 billion euros ($1.06 billion) over five years on new engines.

"Investment this year will decline, not by enough, but it will decline," de Lambert said.

He did not give a guideline for Iveco's 2002 results. The company posted a 123 million euro loss in 2001 on sales of 8.65 billion euros.

De Lambert insisted, however, that Iveco remained a core part of Fiat's operations even though the Italian group, battling to pull back from weak sales and deep losses, has to find money to pump into its car business.

"There is absolutely nothing in the air, even inside the group, to suggest Iveco leaving Fiat," the silver-haired French executive added. "We are not involved at all in any merger talks at the moment."

SELLING NON-CORE ASSETS

Iveco has recently sold off some non-core assets in a bid to help Fiat, which owns 100 percent of the truck maker, and to cut debt after slow car sales pulled it into the red.

Earlier on Thursday, Iveco sold its remaining 25 percent stake in forklift truck maker OM Carrelli Elevatori to Germany's Linge AG for an undisclosed sum.

That came days after it sold long-term hire company Fraikin to French investment group Eurazeo for 805 million euros, cutting 400 million euros off Fiat's net debt, the level of which is closely monitored by the market.

De Lambert pointed to Iveco's fire-fighting equipment unit and defence division as two areas the company might look to sell "if we had an opportunity, and so far we have not". "That has nothing to do really with the situation of Fiat group. It is a decision within Iveco about what is core and non-core," he said, adding that profits from the sale would not be very significant.

De Lambert also quashed speculation that Iveco might bid for Volvo's 45 percent stake in Swedish rival Scania , the world's most profitable truckmaker which Volvo has to sell by early next year. The Swedish auto giant is understood to be seeking a high price for its stake although it has only around 30 percent of voting rights.

"We do not have the money, for now... This stake in Scania is going to be extremely expensive for a limited possibility in management," de Lambert said. He reckoned that the shares might be bought by private equity funds.

Germany's MAN or Europe's biggest carmaker, Volkswagen -- already a strategic shareholder in Scania -- are also seen as potential buyers.

HIGH HOPES ON STRALIS

The new Stralis truck was part of Iveco's bid to strengthen its position in the European heavy truck market, despite an industry downturn.

Dominated by Mercedes Benz , this heavy segment of the market contracted some 15 percent in 2002, de Lambert estimated.

Iveco increased its stake one percentage point to 12 percent, but de Lambert said it was likely to miss a previous forecast to grab a 15 percent share within two years.

"The 15 percent target is ambitious, and we are aiming to make 13.5-15 percent over the next two years," he said.

The medium-sized truck market, in which de Lambert said Iveco was the dominant player with a share of around 16 percent, shrank by around a tenth last year, with sales of light trucks declining by some five percent.

"I am convinced that there are too many truck manufacturers in Western Europe," de Lambert said, adding the cost of renewing the range of models would force the industry to consolidate. "Probably between five and 10 years from now we are going to see significant consolidation."