Fiat  boss Sergio Marchionne will look at spinning off its car business from the rest of the industrial group only when he has a firmer grip on U.S. maker Chrysler and can put the two together.

The uncertain outlook for the European car industry this year as the scrapping incentives that supported 2009 car sales wane and signs of real economic recovery remain fleeting, also means the time is not yet right for the long-mooted spin-off, analysts said.

Fiat Group Automobiles (FGA) , 100-owned by Fiat Group, accounted for 53 percent of last year's group revenues of 13.6 billion euros ($19 billion) and 44 percent of trading profits.

Fiat Group shares on Friday were unchanged at 9.4 euros. valuing the group at 11.3 billion euros ($15.6 billion).

But listing FGA without Chrysler, whose own IPO is planned for some time between 2011 and 2014, would not provide the higher valuation multiples investors are hoping for.

(A spin-off) would only be possible if you do a Chrysler IPO beforehand, and for that the business needs to be in good shape, said Arndt Ellinghorst, a car analyst at Credit Suisse.

Let's see how Chrysler is doing in two to three years.

Fiat Group also owns 100 percent of Maserati and 85 percent of Ferrari. The group also controls commercial vehicle unit Iveco, agricultural and construction machinery maker CNH , several makers of automotive industry components and production systems and a newspaper publisher.

Industry experts say putting the pure-play car activities in a separate entity would allow the market to better price it and may lead to higher multiples.

An investor holding a share in Fiat without the car division and one in Fiat Auto would probably have a total worth that is higher than the current share price, ex-Fiat chairman Paolo Fresco told Italian magazine Il Mondo on Friday.

A spin-off followed by a market listing would also allow Exor , the holding company owned by the Agnelli family that is Fiat's largest shareholder with 30.45 percent, to cut its exposure to the struggling car sector, analysts say.

We believe a spin-off is on the cards, because the Agnellis are looking to cut their exposure to Fiat, said an analyst at a large Italian brokerage. A merger with Chrysler or a similar operation that would allow Exor to be diluted is probable.

CHRYSLER FIRST

Investors have been on tenterhooks for the announcement of a possible spin-off since the dynamic Marchionne first floated the idea more than a year ago, when Fiat was still hoping to win over Opel and had not yet taken its stake in Chrysler.

Marchionne said on March 3 the subject may be addressed at an investor day on April 21, fuelling speculation in the Italian press that a decision is imminent.

But Fiat needs to first raise its stake in the embattled Chrysler to at least 35 percent, analysts say, a level that would allow management to make strategic decisions if it wants the spin-off to make sense. And that would take time.

Spinning off a good business is a good idea, spinning off a bad business is a bad idea, said Ellinghorst.

Marchionne said in January Chrysler absolutely needed to have its shares listed in an IPO.

Fiat agreed to take on 20 percent of bankrupt Chrysler last year in exchange for lending its superior technology to resurrect the U.S. maker. Fiat has the option to raise its stake by a further 15 percent in three tranches of 5 percent upon reaching certain investment targets for Chrysler.

These are: production of a fuel-efficient engine for Chrysler vehicles in the United States, the introduction to the U.S. market of a car with a small fuel appetite of 40 miles per gallon and an increase in Chrysler's production and sales abroad.

Fiat is on its way to achieve these targets. It has announced plans to make a fuel-efficient 1.4-liter engine in Michigan, wants to sell the Fiat 500 city car in the United States and has recently signed a joint venture with Russia aimed at expanding group sales into that market.

But Chrysler still needs to boost sales in America and Marchionne said earlier this month in Geneva that 2010 would be a tough year for Fiat, which has to learn to live without the tax incentives that have helped it through the crisis.

It is clear that we cannot approach the issue of the spin-off without taking Chrysler into consideration, a person familiar with the situation told Reuters.

Brokers at Mediobanca said they did not expect the spin-off to take place before 2011, although further sector consolidation or a new partnership, could speed up the process. The timing is dependent on economic growth. This is not the right moment because the economic outlook is negative, said Pierluigi Bellini, an autos specialist at IHS Global Insight.

And if Fiat was to take majority control of Chrysler before acting, investors would need to wait at least until 2013, when Fiat could first exercise an option to buy a further 16 percent of Chrysler once the U.S. government loans have been repaid.

($1=.7257 euros)

(With additional reporting by Stefano Rebaudo, Gianni Montani and Jo Winterbottom; Editing by Greg Mahlich)