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Alfa, a division of Fiat Auto, is said to be considering moving the account into Grey after problems with its Red Cell relationship. Alfa is one of Red Cell's two key clients along with Singapore Airlines. It spends £10 million in the UK.

Talks in Italy between Alfa and Grey are said to be well underway. Grey is thought to appeal to Alfa because of its strong network credentials. Grey is Skoda's agency in European markets outside the UK but its hold on the account was weakened last year when it lost a pitch for a new pan-European car launch.

The loss of Alfa would be a serious blow to Red Cell, which was launched by Sir Martin Sorrell, the WPP group chief executive, as Conquest specifically to handle the Alfa account in 1988. J. Walter Thompson and Ogilvy & Mather, WPP's two networks at the time, had conflict with its Ford business.

However, the relationship over the past few months is said to have deteriorated with Red Cell struggling to create a strong network. It is now in advanced merger talks with HHCL & Partners in London, and has bought Les Ouvriers du Paradis in Paris to build a credible European presence.

A further blow has been the departure of Luca Lindner, Red Cell's European chief executive, who quit the agency to join D'Arcy at the end of last year. This led to widespread speculation that the account would move to D'Arcy, a roster agency for Alfa's parent company, Fiat.

Alfa denied it is in talks with Grey. Alessandro Furfaro, the vice-president of marketing at Alfa Romeo, said: "We are at the moment very satisfied about the co-operation with Red Cell and are laying the ground to expand it beyond the current scope. We are not considering the option of changing agency."

Lee Daley, Red Cell's chief executive, speaking from Milan following a meeting with Alfa, said: "We've just sold a new campaign to Alfa Romeo across all models for 2003 and that has been approved. We have also won back a slice of European business from D'Arcy, namely the assignment in Belgium."

Alfa's talks with Grey follow news last week that Fiat is looking at making cost savings across its current agency roster.

Nobody at Grey was available to comment.

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