Fiat Group has chosen Herbet Demel, the former head of VW Brazil, to replace Giancarlo Boschetti as Fiat Auto CEO, sources close to the negotiations told Automotive News Europe.

Demel, 49, is currently president and CEO of Magna Steyr, in Graz, Austria, the European arm of Magna International.

Fiat had been chasing former Ford Europe head Martin Leach but gave up hope that Ford would release him from a two-year non compete clause in his contract.

Giuseppe Morchio, Fiat Group CEO since the end of February, has been searching for an experienced car company manager to replace Boschetti, who will retire in November 2004.

Demel is a perfect choice for Fiat Auto, because he has a broad experience in the two most important markets for the Italian maker, Western Europe and Latin America.

As president of VW's Brazilian arm Demel led the company through Brazil's deep economic crisis in the late 1990s.

Born in Vienna, Austria, where he graduated in mechanical and automotive engineering, Demel joined Robert Bosch in Stuttgart, Germany in 1984 as coordinator of ABS applications.

In 1990, he moved to Audi AG in Ingolstadt, Germany, as a manager of the development of engines and transmissions. Demel rose through all the ranks of Audi becoming CEO in February 1994 and president in March 1995.

He joined Volkswagen Brazil as president in May 1997 and moved to Magna Steyr in October 2002.

Fiat could announce the appointment of Demel as soon as the end of the month.

Leach, who resigned from his post at Ford on August 12, was picked by Morchio in late July from a shortlist of candidates prepared by Eric Salmon & Partners, a Paris based head-hunter.

Initially, Leach told Fiat he could join the company within six months.

With Leach out of the running, Fiat started considering senior executives from automotive supplier companies.

"They do not have strict no-compete clauses preventing employees from joining a carmaker," said one company insider.

Fiat wanted Leach to succeed Boschetti, who reaches retirement age in November 2004.There have been rumours that Boschetti is set to retire much sooner, but Fiat has refused to comment on this.

The Italian automaker waited until the end of September to see if Leach could reach agreement with Ford on an earlier release date. Morchio even met privately with Ford president and chief operating officer Nick Scheele on the sidelines of the IAA in Frankfurt.

Last month Fiat appointed Jose Maria Alapont, a senior Delphi executive, as CEO of its Iveco heavy-truck subsidiary. Alapont and Demel will be key players in the broad restructuring of the Fiat Group announced by Morchio on June 26.

Fiat's third-quarter results, scheduled for release on October 31, will provide the first opportunity to see whether Morchio's plans are starting to have an impact.

The new group CEO, who took over from Paolo Fresco in February, has said the company should post a break-even operating result by 2005. It should then achieve a net break-even in 2006.

The Fiat Auto division racked up cumulative net losses of €5.5 billion in the past five years as it was forced to support sales of its aging product line with hefty incentives. Fiat Auto is currently waiting for the market response to the introduction of two of its new models, the Fiat Panda and the Lancia Ypsilon.

Fiat Auto's revenue dropped 13.8% in the first half of 2003 to €10.1 billion, with unit sales falling 12.7 % to 867,100.

Morchio's restructuring plans are intended to cut Fiat Auto's costs by €1 billion in costs out of Fiat Auto annually, Automotive News Europe's report said.