Fiat Outlines Strategy To Cut Costs Amid Recession

Thursday outlined plans to retool its Italian plants as the car maker seeks to cut costs and expand abroad to better cope with the economic crisis.

The Turin-based company, which last week took control of U.S. car maker Chrysler LLC, said it plans to keep the production of cars at its Termini Imerese plant in Sicily only until 2011.

Fiat Chief Executive Sergio Marchionne told a meeting with the government and the company's labor unions that the Termini Imerese plant, which employs about 1,700 people, would be retooled from 2012. He didn't elaborate.

Fiat also said it would define a redundancy plan at its agricultural and construction equipment unit CNH. Marchionne told a meeting attended by Italian Premier Silvio Berlusconi and union officials that it was hard to maintain employment levels due to the recession.

"The global crisis has further aggravated the problem of production overcapacity that has been plaguing the automotive industry for years. A serious restructuring of the automotive industry is now absolutely necessary if it is to be economically viable," Fiat said in a statement.

Hit by the global economic downturn, the Italian economy is expected to contract by more than 5% this year, after shrinking by 1% in 2008, marking the worst recession since World War II.

Workers at the Termini Imerese facility went on strike last month, fearing the closure of their plant. Further protests are likely, according to analysts.

At its Pomigliano plant near Naples, Fiat said it would continue to make its Alfa Romeo cars until at least 2010, with a new car production platform planned afterwards.

The Italian government and Fiat could agree to a EUR900 million financing plan to help keep its plants running near full capacity, daily la Repubblica said Thursday.

Marchionne urged the government to give Fiat continued access to a temporary lay-off plan, allowing it to use funds set aside to pay workers a reduced salary for working fewer hours.

"Fiat confirmed its pledge to maintain the plants in Italy without firing anyone" and by using state-sponsored layoff schemes, Italian Industry Claudio Scajola told a reporters.

The government last month said it would continue to help Fiat only if it kept open its five Italian plants as it seeks to expand to create one of the world's largest automakers.

Fiat last week took a stake and management control of Chrysler after the U.S. car maker emerged from bankruptcy protection.

The alliance with Chrysler, which has created the world's sixth-largest car maker, is a step in the process to increase volumes produced on each platform and expand internationally, Fiat said Thursday.

After a failed bid for General Motors Corp.'s (GMGMQ) Opel unit, Marchionne plans to focus his attention on restructuring Chrysler. Behind the scenes, however, Fiat is expected to keep hunting for another partner that can give it scale in an industry dominated by bigger rivals.

Six months ago, Marchionne set out to double Fiat's production to around 5.5 million cars, compared with the two million it made last year.

"Maintaining equilibrium in employment levels in the face of these extremely difficult market conditions is no easy task," Marchionne said.