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Marchionne Summoned by Berlusconi to Defend Fiat's Italy Plans

Fiat SpA Chief Executive Officer Sergio Marchionne needs to reassure Prime Minister Silvio Berlusconi that he isn’t planning to move Italy’s biggest manufacturer a month after winning government backing in a battle with unions over labor concessions.

The CEO caused a stir in Italy this week after saying Feb. 4 that the Turin-based carmaker and Chrysler Group LLC may “end up looking like one entity,” possibly based in the U.S. The CEO later backtracked, saying no decision has been made. Fiat owns 25 percent of Auburn Hills, Michigan-based Chrysler.

Fiat plans to build as many as 280,000 cars and SUVs a year for the Jeep and Alfa Romeo brands at its Mirafiori plant in Italy starting in 2012 as part of a venture with Chrysler. Under a deal with unions, workers will put in more hours, take shorter breaks and risk having pay withheld for persistent absenteeism.

“Integration with Chrysler may lead to new combinations, so it’s crucial to stress the importance now of a prominent position for Italy,” Labor Minister Maurizio Sacconi, who spoke with Marchionne last week, said in an interview. “The government wants to verify with Fiat’s management the status of the Italian investment plan.”

Marchionne, 58, will meet with Berlusconi and other ministers in Rome tomorrow. Fiat Chairman John Elkann will also attend. The CEO will speak about the company’s production goals at a parliamentary hearing in Rome on Feb. 15.

Parliamentary Hearing

The Mirafiori plant deal is part of a 20 billion-euro ($27 billion) investment project to revamp Fiat’s five Italian car plants, where it aims to produce 1.4 million vehicles a year by 2014 from 650,000 in 2009.

“The government is moving too late, but better late than never,” said Federico Bellono, the local head of the Fiom union in Turin, which opposed the Mirafiori agreement. “Marchionne is more oriented strategically toward the U.S. than Europe.”

Fiat shares were little changed in Milan, trading at 7.15 euros at 1:39 p.m. local time The stock has gained 7 percent this year.

After Italy’s main newspapers all printed Marchionne’s comments about a move to the U.S. on their front pages, Elkann on Feb. 5 was forced to qualify the CEO’s remarks, saying that Fiat would never abandon Turin, where it’s been based for over a century.

Italians’ concerns that a combined Fiat-Chrysler may locate its headquarters in the U.S. are overblown, Marchionne said Feb. 9 in an interview at the Chicago Auto Show. No decision has been made on governance or a headquarters location, he said, adding that the issue won’t be on his agenda before 2014.

20 Billion Euros

“Marchionne is taking the money and running to the U.S.,” former Public Works Minister Antonio Di Pietro wrote in a post on his website. “Where are the 20 billion euros?”

Fiat is trying to improve productivity and capacity utilization to restore profitability in Italy, still the carmaker’s biggest market. None of the company’s profit in 2010 came from Italy, Marchionne said. The automaker may lose 814 million euros in Europe in 2011, according to Kristina Church, a London-based analyst at Barclays Capital.

Chrysler could earn as much as $500 million in net income this year, its first profit since bankruptcy in 2009, the company said Jan. 31. Marchionne has said he wants to take Chrysler public in the second half of 2011 and that he’ll need two quarters of profitability before he can do it.

‘Two Different Games’

“Marchionne is playing two different games, one in the U.S. and the other in Europe,” said Giuliano Noci, a professor at the MIP Management School of Milan’s polytechnic university. “In North America he’s creating consensus on Chrysler before its initial public offering, while in Italy he needs to shock the country into creating a more competitive environment.”

Photographer: Adam Berry/Bloomberg

John Elkann, FIAT Group vice president, reacts at the 62nd Frankfurt International Motor Show (IAA), in Frankfurt on Sept. 11, 2007. Close

John Elkann, FIAT Group vice president, reacts at the 62nd Frankfurt International... Read More

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Photographer: Adam Berry/Bloomberg

John Elkann, FIAT Group vice president, reacts at the 62nd Frankfurt International Motor Show (IAA), in Frankfurt on Sept. 11, 2007.

Fiat’s 22,000 auto workers in Italy assembled 650,000 cars in 2009, compared with 600,000 made by 6,100 employees at the company’s factory in Tychy, Poland. That means, without taking into account differences in models and working hours, productivity in Italy averaged 30 cars per employee a year, compared with almost 100 at Tychy. Fiat is closing one Italian car plant, at Termini Imerese, at the end of this year.

“The era of state aid is over,” Sacconi said, adding that the government will stress the “current and historical” reasons for keeping Fiat based in Italy in tomorrow’s meeting. Italy doesn’t oppose mergers involving Fiat, the minister said. “We’ve always believed that it’s necessary for Fiat to integrate with other producers at a moment in which the global car market is shrinking.”

Additional Stake

Fiat can gain an additional 10 percent stake in Chrysler in two steps if the U.S. carmaker reaches milestones including some sales objectives outside of North America. Fiat has an option to increase the holding to 51 percent after Chrysler repays U.S. and Canadian government loans. Marchionne has said he aims to get to 51 percent of Chrysler before the end of this year.

“There was an overreaction to Marchionne’s comments, which shows how fragile the Italian economic system is,” said Turin Mayor Sergio Chiamparino, who regularly plays cards with the Fiat CEO. “I told Marchionne he should better explain his business model, which represents a revolution for the Italian culture.”

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net.

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net.

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