November 26, 2010 / 10:41 AM / 9 years ago

UPDATE 3-Fiat plans JV with Chrysler for Turin plant

* Fiat, Chrysler to jointly invest over 1 billion euros

* To make top-range cars, SUVs for Alfa Romeo, Jeep brands

* CEO says more flexibility needed to face competition

* Shares down 2.6 percent, more than sector

(Adds unions comments, background, updates shares)

By Gianni Montani

TURIN, Nov 26 (Reuters) - Italian carmaker Fiat FIA.MI is setting up a joint venture with U.S. peer Chrysler to make top-of-the-range cars at its Mirafiori plant in Turin, as it looks to ramp up home production to match European rivals.

Italy’s largest industrial group, which owns 20 percent of Chrysler, has pledged to invest 20 billion euros ($26 billion) to boost output and improve efficiency at its Italian car plants in exchange for more labour flexibility.

“We are in a difficult situation in Italy, our industrial network is not efficient and is not in a position, as things stand, to cope with competition,” Chief Executive Sergio Marchionne told reporters after a meeting with unions.

Europe’s No. 6 carmaker, losing money at all its car plants in Italy, said the plan for Mirafiori would require an investment of over 1 billion euros as well as more flexible labour rules.

“The only thing we ask for Mirafiori is to reach a higher level of flexibility and production,” Marchionne said.

KEY TEST

Analysts say Fiat’s “Fabbrica Italia” project to boost Italy’s lagging competitiveness to levels seen at rival European carmakers is key if it wants to grow.

Marchionne had to work hard to convince workers to back a landmark deal at its Pomigliano plant near Naples in June, which brought an increase in the number of shifts and limit to strikes and benefits.

Fiat met unions on Friday to outline its efficiency plans for Mirafiori, including more flexible shifts similar to those at the Naples plant.

Unions welcomed the start of “open” negotiations on Mirafiori, but one warned against a repeat of the Naples deal.

“We want to put (Marchionne) to the test and see if there are negotiable issues because the Pomigliano deal doesn’t work”, Giorgio Airaudo, secretary of dissident Fiom union, said.

The historic Mirafiori plant employs around 5,500 dedicated staff for car-making and is one of Italy’s biggest, along with the Melfi plant in southern Italy.

Mirafiori currently produces the Fiat Multipla, the Fiat Punto Classic, the Fiat Idea, the Lancia Musa and the Alfa Romeo Mito. Production of some of these models is expected to stop before the end of next year.

Fiat said it plans to make up to 280,000 vehicles a year at Mirafiori, with new Jeep and Alfa cars and SUV models to be launched by the fourth quarter of 2012.

The carmaker, mainly present in mature markets such as Europe and the United States, said more than half of new models would be sold worldwide.

Fiat surprised analysts last month when it nearly doubled its 2010 trading profit target to more than 2 billion euros, though predicting a continued sharp decline in the European car market. [ID:nLDE69J10V]

Fiat shares were down 2.6 percent at 13.14 euros at 1448 GMT. The STOXX 600 index of European car manufacturers .SXAP was down 1.4 percent. ($1 = 0.7540 euro) (Writing by Antonella Ciancio in Milan; Editing by Dan Lalor and Jon Loades-Carter)

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