MILAN, Italy - Fiat has cut its performance targets sharply for the next two years, saying poor sales in austerity-hit Europe could lop a third off of its projections for 2014 trading profit.The sharp sales downturn in Europe has forced Fiat/Chrysler CEO Sergio Marchionne to focus on bolstering Fiat's operations on Europe instead of buying more shares in Chrysler, the US automaker in which Fiat has a 58.5% stake.Marchionne, who runs both Fiat and Chrysler, repeated his plans to merge the two automakers by 2014 or 2015 but said Europe took centre stage. He told analysts and reporters during a conference call on October 30, 2012: "Our primary objective right now is that of fixing the European environment."SALES FORECAST CUTThe Italian automaker now expects its 2014 trading profit to be between the equivalent of R52.6-billion and R58.2-billion, down from its earlier forecast of R84-billion. Net industrial debt in 2012 could hit the equivalent of R72-billion, up to R11-billion above the previous projection.The Turin-based company also expects to sell as many as 4.8-million vehicles in 2014, not the six-million it forecast in a five-year plan outlined in 2010, back when Europe seemed ready to recover from the global financial crisis.Fiat reported slightly better than expected third-quarter profits but reiterated that it did not plan to shut European factories, unlike some of its competitors. Instead, it promised to increase investment and return its European operations to profitability in 2015/16 by developing "global brands Alfa Romeo, Maserati, Jeep and the Fiat 500 'family'". Marchionne acknowledged the risk in investing and avoiding factory closures while the European market was shrinking.AFLOAT THROUGH CRISIS"This is truly not for the faint-hearted," he said. "We never shied away from the challenges of making Chrysler into a viable carmaker. I think we need to do it one more time, to find a permanent solution to Europe's quandary."Under Marchionne, Fiat took management control and a 20% stake in Chrysler when the US automaker emerged from government-funded bankruptcy in 2009. Since then Chrysler's revival has kept Fiat afloat through the current European crisis, allowing it to keep all its Italian plants open, although they are running below capacity.Fiat shares fell sharply after the profit warning but an Italian fund manager, who spoke on condition of anonymity, said: "The share is being buffeted by the lowered targets, though honestly it's all just a natural consequence of the unfolding crisis on the European markets."Thank God there's Chrysler. Fiat without Chrysler would be in real trouble."Earlier in the day, Fiat posted a third-quarter trading profit above analysts' forecasts, as a jump in sales at Chrysler offset a growing loss in Europe, where the automaker sees no recovery until 2014.PLANT CLOSURESFiat's bearish outlook hammers home the problems facing European auto companies as they struggle to stem losses from high fixed costs in a shrinking market. Europe's sovereign debt crisis, government spending cuts and high unemployment have hit consumer spending and sent demand plunging, with new car registrations in the region showing their sharpest contraction in a year in September.US rival Ford recently said it would close plants in Belgium and Britain, with the loss of thousands of jobs.PSA Peugeot Citroen has accepted state aid and even Germany's VW, previously more resilient to crisis than its mass-market rivals, posted a big drop in quarterly profits.Fiat's bottom line continues to be bolstered by Chrysler, which posted an 80% rise in quarterly net income on Monday, as well as by strong results in Brazil.In Italy, total car sales have declined to levels not seen since the 1970's and Fiat has responded by cutting back on spending - a strategy that has drawn criticism from trade unions, politicians and even some other business leaders.