Fiat Argentina concerned over wage rises

BUENOS AIRES (Reuters) - Growing demands for salary increases are worrying Fiat Argentina as it prepares to produce vehicles in Argentina next year after a seven-year hiatus, the company's top executive said on Tuesday.

Concerned about inflation eroding their purchasing power, Argentine workers have stepped up calls for pay rises while executives struggle with the impact on their company's bottom line.

"We're decidedly worried. Last year there were important pay hikes. It can't get out of control," Cristiano Rattazzi, president of the local representative of Italy's Fiat FIA.MA, said at the Reuters Latin American Investment Summit in Buenos Aires.

Argentina's economy has grown more than 8 percent in each of the last four years, fueled in part by a boom in consumer spending. But the growth has also stoked inflation, which was nearly 10 percent last year.

"There's a need to address the salary hikes, but what's lacking is a negotiation between us and the unions," Rattazzi said, adding that he would like to see wages keep pace with inflation plus one or two percentage points.

Some trade unions in Latin America's No. 3 economy are calling for pay rises of about 20 percent.

Thanks to growth in auto parts exports and strong local demand for cars, Fiat Argentina could see its 2007 revenue rise more than 40 percent from 800 million euros last year, Rattazzi said.

Rattazzi also said he sees Argentina's overall auto production at up to 490,000 cars as the industry continues to grow following the country's 2001-2002 economic crisis.

That would represent a 14 percent increase from 2006 and eclipse a record 458,000 vehicles sold in 1998.

The automotive sector, along with construction, has been one of the pillars of Argentina's explosive economic growth.

Fiat stopped making cars in Argentina in 2001 as the economy went into a tailspin. Since then it has focused on producing motors and gear boxes and selling vehicles mostly imported from Brazil.

The company teamed up this year with India's Tata Motors Ltd. (TAMO.BO) in an $80 million investment to begin production next year of a pick-up truck at Fiat's plant in the central Argentine city of Cordoba.

The initial production target is 20,000 pick-ups a year, Rattazzi said.

The move is helping "Argentina re-insert itself in the global organization of Fiat", he said.

Fiat Argentina employs 2,000 people in the country and is expected to hire another 1,000 for the Cordoba plant.

Encouraged by the sizzling economy, Fiat Argentina aims to boost its market share to 15 percent by 2009 from 10 percent now.

Last year, Fiat Argentina's sales trailed market leader Volkswagen (VOWG.DE), General Motors GM.N, Ford (F.N) and Renault (RENA.PA).