Fiat to make U.S. cars in Italy as government mulls incentives

MILAN/TURIN Mon Sep 24, 2012 11:43am EDT

A logo of Fiat is seen at the Fiat plant in Pomigliano D'Arco, near Naples, in this December 14, 2011 file photo. REUTERS/Alessandro Bianchi

A logo of Fiat is seen at the Fiat plant in Pomigliano D'Arco, near Naples, in this December 14, 2011 file photo.

Credit: Reuters/Alessandro Bianchi

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MILAN/TURIN (Reuters) - Italian carmaker Fiat (FIA.MI) plans to start making cars at its idled Italian factories to sell in the United States, a source close to the matter said on Monday, as the government mulls fiscal and other incentives to help the group's exports.

Chief executive Sergio Marchionne, who also runs majority-owned U.S. carmaker Chrysler, met Italian Prime Minister Mario Monti on Saturday to discuss how Fiat can keep its factories open at a time when car sales have plunged to their lowest level in 40 years.

A joint statement after the five-hour meeting said Fiat would refocus its domestic business model to making cars in Italy for export outside Europe but little detail has emerged from the talks.

"We may introduce mechanisms for Fiat and for the entire manufacturing sector, destined to make exports easier either in fiscal terms or otherwise," Industry Minister Corrado Passera, who attended the meeting with Marchionne, said on Monday.

A person familiar with the situation said Fiat would use loss-making Italian factories to produce cars to sell in the United States, where the market is growing and Chrysler's factories are already running at full capacity.

Italian factories could make Jeep and Chrysler models, the person said.

No firm commitment or timetable has yet emerged for the export plan.

Fiat will no longer release a detailed strategy on products and plants on October 30 as previously planned, two sources close to the matter said. Fiat declined to comment.

Marchionne reiterated the company's targets on Monday at an industry conference in Turin where he said he does not see the European car market recovering until at least 2015.

"The European car market is a disaster. It has plunged off a precipice that doesn't seem to have bottomed out yet. The prospects are anything but rosy," Marchionne said.

GOVERNMENT GETS INVOLVED

Marchionne was called in by Monti to detail Fiat's strategy for its Italian plants as the economic recession heightens fears of job losses at the country's biggest private employer.

Monti, already struggling to cut public spending to balance Italy's budget, said on Monday Marchionne had not asked at their meeting on Saturday for aid or extra cash for a state-funded lay-off program.

"Financial aid was not asked for, and had it been requested it would not have been given," Monti said in Rome.

Any specific aid to Fiat is bound to be resented by voters in a country where the euro zone debt crisis has forced millions to tighten their belts, creating a political hot potato.

The combined Fiat-Chrysler group, which now makes more than two thirds of its profits in the United States, had so far only earmarked a fraction of the 16 billion euros ($21 billion) of new investments in Italy which Marchionne outlined in a five-year plan in 2010.

That stalled investment plan has created a public relations firestorm for Fiat in Italy, where it is the biggest private industrial group and employs more than 20,000 people.

It promised the investments in return for greater labour flexibility. New labour contracts are now in place at its plants, but in the meanwhile Fiat has shifted some production to lower cost countries and put investments in Italy on hold.

"We are none the wiser after the meeting with the government," said Giorgio Airaudo of the FIOM union. "It's all very well to say we'll make cars to export, but until they say which models and how many cars we are back to square one."

Marchionne has said he will not waste money by making investments during a five-year European market slump. Fiat will lose 700 million euros in Europe in 2012, he said last week.

"We are facing a crossroad, the choice is between reducing output capacity and firing thousands of employees ... or trying to use our skills, our knowledge of products and processes, the technology of our plants, to make inroads in foreign markets," Marchionne told an industry conference on Monday.

Analysts, however, have so far appeared unimpressed with the talk of an export-led solution to Fiat's deep problems.

"It remains our view that fixing Fiat's European business will be tough to achieve without a significant reduction in capacity," Deutsche Bank said in a note to investors after the weekend meeting between Monti and Marchionne.

Italian broker Banca Akros also said it was unclear how Fiat could increase exports from Italy in the short term if it delayed investment.

Fiat's shares were up two percent at 4.58 euros at 1450 GMT, when the Stoxx Europe 600 automotive sector index <0#.SXAP> was down 0.5 percent.

($1=0.7699 euros)

(Additional reporting by Elisa Sola, Steve Scherer, Stefano Rebaudo; Writing by Silvia Aloisi; Editing by Greg Mahlich and David Cowell)

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