The Paris Auto Show opens to the media on Thursday, but among all the shiny new cars and beautiful, smiling models and well-dressed, smiling VIPs, there will probably be at least one face that isn’t all smiles.

Sergio Marchionne wears many hats, but two are particularly uncomfortable at the moment: CEO of Fiat SpA and president of ACEA, the European Automobile Manufacturers Association.

At the moment, Fiat is bleeding sales and market share as its home market continues to contract in an economy that could most gently be called “down.” For the first eight months of 2012, Italy’s leading automaker and largest private employer has posted the worst year-over-year sales record of any of the major car companies and Marchionne doesn’t see things improving until at least 2015.

“We need to rethink the business model to which we are accustomed.” Sergio Marchionne told a group in Turin. “We have to realize that given the current demand for and predictions of the coming years, Italy and Europe can not be the end markets for us. Their capacity has become too small. We can and must think of the automotive industry in Italy with a different logic, orient it in a different way and equip it to become an important center of production for export outside of Europe.”

“In our case,” said Marchionne, “this means above all exporting to the United States, as well as the rest of the world. This applies not only to Fiat but for all companies wishing to pursue this strategy. It is the only way to maintain a strong industrial base in our country. A base which, as history has shown, is a guarantee of employment, skills and economic stability.”

Marchionne recently traveled to Rome in answer to a summons from Italian Prime Minister Mario Monti. During a five-hour meeting, Marchionne presented his plans for Fiat and said that he needed the government to make exports more feasible so that Fiat could put idled Italian factories to work producing Chrysler and Jeep vehicles for the U.S. and other markets.

Even other Italian businessmen are upset with Marchionne’s handling of the crisis, including the suspension of the investment of billions of euros in Italian production that was promised if the Italian labor unions would accept new contracts with more stringent conditions and hints from Marchionne and Fiat chairman John Elkann that Fiat might relocate to another country.

Diego Della Valle, CEO of Italian leathergoods company Tod’s, accused Marchionne of being the real problem. Della Valle was quoted in the Italian press as saying “(T)he crisis exists for those that have nothing to sell. These improvised Fiat [people] want to tell us that it’s no longer convenient to make cars in Italy and tell serious entrepreneurs like us that innovation is no longer possible during a crisis.”

Marchionne responded by saying that what Della Valle considers an investment wouldn’t cover the cost of developing a new fender.

Italian newspaper Corriera della Sera reported comments from Elkann: “What we have suffered in recent weeks, in Italy, is not acceptable. We can not ignore the harsh conditions of the European context: we do not hide problems, we face them and seek solutions. We have heard commentators, analysts, experts in areas they do not really know, politicians looking for easy targets, people talking about it, and they do not tell the truth. It’s time to really speak the truth, without hiding the problems but saying plainly how things are.”

Capping everything off is the ongoing war with Volkswagen, which Marchionne accused of starting a bloodbath in the European market by instigating price wars that exacerbate the economic woes of other manufacturers as well ramping up production while other companies are dealing with excess capacity. Volkswagen shot back with a demand that Marchionne resign as ACEA president as he was unfit to serve.

On the realities of the European market, Fiat’s Numero Uno is unequivocal: “The European car market is a disaster. Anyone working in the automotive industry in Europe today is experiencing varying degrees of unhappiness. Everyone is suffering from the pains of hell in his own way. ”

“It (the market) slipped off a cliff,” Marchionne continued, “one that does not seem to hit bottom. The latest forecasts indicate that this year the demand for cars in Europe will not go more than 12.5 million units, the second lowest level in twenty years. And the outlook is far from rosy.”

Ford, General Motors, PSA Peugeot and Renault all need to close factories and reduce headcount. Fiat needs to do the same if it can’t make its export plans work. Unlike labor laws the U.S., European laws make such reductions difficult. Earlier this year, Marchionne, as president of the ACEA, tried to put together a coalition of manufacturers to persuade the various governments that cuts were vital to survival. Volkswagen, which is hiring thousands of workers around the world and ramping up production, BMW and Daimler AG had the benefit of a relatively strong German economy and wouldn’t join in the effort.

While it has a relatively small market share in North American, Volkswagen is actually one of the world’s top three automakers. In Europe, it’s the proverbial 800-pound gorilla with both the capacity and the wealth to reshape the market.

For the first eight months of this year, Volkswagen AG has claimed a 25.0% share of all light vehicle registrations in Europe. PSA Peugeot, which is the runner-up to VWAG in Europe, has an 11.9% share, less than half that of Volkswagen. By comparison, the gaps in the U.S. are much smaller: General Motors has an 18.1% share, followed by Ford with a 15.6% piece of the pie.

The imbalance was even worse in August, when Volkswagen’s take was nearly a point of share higher than the combined shares of the next three automakers, PSA Peugeot, Renault and General Motors of Europe.

Then there’s the money: Ford is looking at a billion-dollar loss on its European operations this year; GM could lose as much as $1.3 billion on its Opel and Vauxhall brands and Marchionne has said Fiat will likely lose about $900 million. Volkswagen, on the other hand, predicts 2012 profits in the neighborhood of $14.6 billion, though the company has said it doesn’t expect profits to grow as they have in recent years.

All in all, it is a tough balancing act, even for an executive as talented as Marchionne, and his straightforward style might work against him. Martin Winterkorn, Volkswagen’s equally talented CEO, needs to be won over, for the benefit of all manufacturers operating in Europe. Winterkorn, on the other hand, needs to be able to preserve Volkswagen’s momentum as the German automaker pursues its goal of becoming the world’s largest car company.

Speaking of Fiat, which he has already resurrected once, Marchionne confessed, “In the last eight and a half years I have constantly sought to involve a partner in our activities in Italy. I was not successful, I declare my complete failure. There is no one who wants to take on one of the Italian burdens. And let me be clear on one point: the problem is not the workers, but the system.”

Now all Marchionne has to do is fix the system.