December 22, 2009 / 7:54 PM / 11 years ago

UPDATE 1-Fiat offers hefty output boost, says will be costly

* Fiat plans exceed government targets on Italy output

* Needs hefty investments, high labour flexibility -CEO

* No further word on government incentives to buy cars (Recasts first sentence, adds details of plan, changes dateline from MILAN)

By Giuseppe Fonte

ROME, Dec 22 (Reuters) - Fiat FIA.MI hopes to boost car production in Italy by more than half to as much as 1 million units in 2012, but it will need huge investment, government support and greater worker flexibility, its CEO said on Tuesday.

Sergio Marchionne, who also heads U.S. car maker Chrysler, outlined a radical plan for production in Italy to government and union representatives on Tuesday as he seeks to ensure a strong future for auto production in the country.

Marchionne said that Fiat could bring production of its Panda small car to the Pomigliano plant in southern Italy, currently working at about a third of capacity.

“Building the future Panda at Pomigliano would guarantee very high volumes ... (but) you are talking about a radical intervention which would require huge resources.”

Industry Minister Claudio Scajola, who was at the meeting, has said he wants Fiat to produce more than 900,000 cars in Italy.

“We appreciate Fiat’s intention ... to increase Italian production by 50 percent, as the government has requested,” Scajola said in a statement after Tuesday’s meeting.

The minister called for Fiat, unions and local authorities to meet urgently on the future of a plant in Sicily which Marchionne confirmed will stop car production in December 2011. He first outlined these plans in June. [ID:nLI235805]

COURAGE NEEDED?

“We need an act of courage right now to take the weak points out of the system and concentrate on the strong ones,” Marchionne said in his presentation on Tuesday.

Slumping demand as customers rein in spending to survive the global financial crisis has hit car makers in Europe and the United States. Both General Motors [GM.UL] and Chrysler were brought to the brink and are now supported by Washington.

Western car makers are increasingly looking to consolidation or tighter cooperation, often with Asian partners, to survive.

Governments have helped sales with tax breaks but these are ending and that could mean hefty falls in demand in 2010.

Marchionne said Italy’s car market could fall to 1.7 million units in 2010 without a gradual phasing out of incentives, from about 2.1 million units expected this year. With tax breaks, it could be stable, he added.

Fiat brands have around 33 percent of the domestic market.

The government is focused on incentives for natural gas powered cars, foreign car makers’ group UNRAE says, which could add about 80,000 units to 2010 sales. [ID:nMAT012222]

The government has said it will extend incentives past the Dec. 31, 2009, deadline in some reduced form but it said nothing more on the issue on Tuesday.

Marchionne’s other big concern is production costs, and he has called many times for rationalisation of output in Europe, as has already occurred in the United States.

In Italy, he said, “the number of cars produced per worker is totally out of proportion” compared with plants in Brazil or Poland. “It doesn’t correspond with any industrial logic.”

Marchionne said that Fiat’s five plants in Italy produce 650,000 cars a year and employ about 22,000 people while in Brazil, one plant with 9,400 workers produces 730,000 cars.

“The domestic auto industry has lost importance,” an industry specialist said, adding Marchionne “thinks internationally” after taking on Chrysler.

Marchionne said on Tuesday that Chrysler had saved Fiat, adding that his plans for the U.S. car maker were key to Fiat’s survival too. [ID:nN0421635]

For a FACTBOX outlining Fiat’s plans for Italy plants, double click on [ID:nLDE5BL1SA] (Reporting by Giuseppe Fonte in Rome, writing by Jo Winterbottom; Editing by Mike Nesbit and Matthew Lewis)

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