Fiat faces rough ride in Italy

January 18, 2010

by Guy Dinmore in Rome

Published: January 18 2010

Death knell: workers at Fiat’s Termini Imerese plant in Sicily went out on strike in protest over proposals to shut the factory

Sergio Marchionne, chief executive of Fiat and Chrysler, is hailed as the potential saviour of the failed US carmaker, but at home he faces a rough ride as unions mount protests against plans to close one of Fiat’s five car plants in Italy.

Still, the unions’ recession-induced weakness and a reluctance by Italy’s troubled centre-right government to block one of the country’s most powerful industrialists has led some analysts to believe that Mr Marchionne could get his way.

The contrasts in fortunes for Italy’s workers were starkly highlighted last week. On the same day that the French government put pressure on Renault to maintain production of the Clio in France, after receiving state bail-outs, Mr Marchionne used the Detroit car show to reiterate comments he made last year that it would be “madness” for Fiat to keep open its Termini Imerese plant in Sicily beyond 2011.

Workers there immediately downed tools, and union leaders later agreed to stage a half-day strike in all Fiat’s Italian car plants on February 3.

Fiat says it lost €1,000 ($1,400) on each of the 60,000 Lancia Ypsilons it made at Termini Imerese last year. The carmaker describes the plant, which employs 1,400 workers, as a “cathedral in the desert” at the end of an uneconomic supply chain.

Production of a new Ypsilon model will be switched to Fiat’s Tychy plant in Poland. But unlike Carlos Ghosn, Renault’s chief executive, who was summoned to meet Nicolas Sarkozy, France’s president, at the weekend to explain his strategy, Mr Marchionne appears to have a much stronger bargaining position with Silvio Berlusconi, Italy’s prime minister.

Renault and Fiat’s negotiations with their respective governments are being shaped by political campaigns before important regional elections in both countries in March.

But while Mr Sarkozy likes to flex his muscles in building France’s national champions, a senior industry consultant in Italy, who asked not to be identified, suggested that Mr Berlusconi, weakened by personal scandals and his court cases, was not prepared to pick a fight with Mr Marchionne over Sicily.

Instead, Rome’s tactic is to endorse concerns in Brussels over breaches of EU single-market rules by Italy’s competitors. Last week Claudio Scajola, the minister for economic development dealing with Fiat and the unions, asked Antonio Tajani, European commissioner for industry, to examine possible market distortions caused by the direct support given by “some countries” to their car manufacturers.

Mr Scajola appears to have accepted Fiat’s arguments for closing its Sicilian plant and is already looking for alternative industrial uses.

Unlike Renault and other European carmakers, Fiat has not taken cheap government loans, although it has benefited from partly state-assisted funding for laid-off workers. Fiat, in line with its competitors, stands to benefit from state-backed scrappage schemes for old vehicles, but it points out that the cash-strapped Italian government has not yet picked up its part of the tab, owing Fiat nearly €1bn in tax credits.

Mr Marchionne last month hammered home to the government the depth of the crisis in Europe’s car industry and Italy’s continuing lack of competitiveness in spite of his success in turning Fiat round.

Last year Fiat’s 22,000 car workers at five plants in Italy produced 650,000 units. In contrast, only 6,100 workers at Poland’s Tychy plant made nearly as many, while 9,400 workers at Fiat’s Brazilian Betim factory turned out 730,000. Fiat projects total demand in Europe will fall to 12m cars in 2010 from 13.5m last year. On average, 30 per cent of Fiat’s Italian car workers were laid off last year.

The carrot dangled by Mr Marchionne is a proposal to shift production of the Panda from its over-stretched Polish plant to the near-idle Pomigliano D’Arco factory near Naples by 2012, with a possible annual output of 300,000 cars. Given current numbers of laid-off workers, unions are understandably sceptical about how many jobs this would create.

Mr Marchionne’s declaration that the move would require huge resources and “economic viability of industrial initiatives” suggests he will also seek major concessions from central and local governments, and from the unions.

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