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Fiat to sit tight on European investment plan
September 24, 2012 / 10:47 AM / 5 years ago

Fiat to sit tight on European investment plan

Fiat CEO Sergio Marchionne gives a speech during the opening ceremony at the FIAT car plant in Kragujevac April 16, 2012. REUTERS/Ivan Milutinovic

MILAN (Reuters) - Italian carmaker Fiat FIA.MI has put its European investment plans on hold until it sees signs of a market recovery and therefore will not be giving the widely expected update on the plans next month, two sources close to the situation said on Monday.

Fiat’s chief executive Sergio Marchionne, who also runs its majority-owned U.S. carmaker Chrysler, met Italian prime minister Mario Monti on Saturday following concerns that the group is planning to shift manufacturing outside of Italy where car sales have plunged to their lowest level in 40 years.

After five hours of talks, a joint statement said the company would not shut plants, and would instead refocus its domestic business model towards exporting cars outside Europe, indicating Fiat might start building cars in Italy for sale in the U.S. market, where Chrysler’s sales this year have been exceptionally strong.

Fiat and government ministers will now sit down around the table to work out a way for Fiat to manufacture cars for export from Italy, where the group employs more than 20,000 people, at competitive prices.

That may involve special conditions awarded by the government for models that sell in the United States like Jeep, Chrysler and - in the future - Alfa Romeo.

But workers and investors hoping for a detailed strategy on products and plants will have to wait longer than October 30, the previous deadline for Fiat’s new investment plan.

“There won’t be a plan on Oct 30,” one of the sources said. “Programmes and investments will be made when the conditions are right ... in the future, at a date that still has to be decided.”

Fiat declined to comment.

The company may decide to update its 2012 targets on October 30, a second source said, but Marchionne reiterated those targets on Monday when speaking at an industry conference in Turin where he said he doesn’t 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 provide details of Fiat’s strategy for its loss-making Italian plants as the economic recession heightens fears of job losses at the country’s biggest private employer.

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

Monti, fighting to save Italy from financial collapse, 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,” he said at a conference in Rome.

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

Fiat said last week it was unrealistic to expect that a project announced 2-1/2 years ago would remain unchanged, and Marchionne said he would not throw money out of the window by making investments during the European market slump.

The company is losing 700 million euros in Europe, he said, pledging, however, not to shut down Italian plants.

“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 said on Monday.

Industry Minister Corrado Passera criticised Fiat for pulling back on investments on Monday, saying Fiat’s falling market share in Europe suggested its investments were inadequate.

But analysts 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 manage to increase exports from Italy in the short term if it continues to delay investments.

Fiat’s shares were down 1.3 percent at 8.14 euros at 1325 GMT, when the Stoxx Europe 600 automotive sector index <0#.SXAP> was down 1 percent.

(Additional reporting by Elisa Sola, Steve Scherer; Writing by Silvia Aloisi; Editing by Greg Mahlich)

jennifer.clark1@thomsonreuters.com; +3902 66129422

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