With Europe’s auto market in a nosedive, Fiat SpA’s Italian operations are running at just half capacity. Chrysler Group LLC’s are flat out as its sales boom. So why not build Chryslers in Italy?
That’s what Sergio Marchionne, chief executive of both companies, is considering to ease the pressure on the U.S. carmaker and keep Italian workers on the job, according to three people familiar with the matter.
Marchionne is asking Italy’s government to reduce corporate taxes on exported vehicles in order to competitively build cars in the country for North America, said the people, who didn’t want to be identified discussing deliberations that aren’t yet finalized. A Fiat representative declined to comment.
Marchionne, who is still working on the details, may announce the plans by the end of this month, when he updates the market on his strategic targets for Fiat, the people said.
“Export from Italy is a way to use some of the capacity that is in Italy and the exports can go anywhere,” Mike Manley, the head of Chrysler’s international operations, said on Oct. 16 in his ninth-floor office at the company’s headquarters in Auburn Hills, Michigan. Manley declined to elaborate on plans for production in Italy.
Fiat has suspended investments in Italy, reducing spending in Europe by 500 million euros ($655 million) in 2012, and delayed new models as the carmaker heads toward a 700 million-euro loss in the region this year. The European auto market is on track to decline in 2012 by the most in 19 years, according to the ACEA industry group.
Marchionne told Italian Premier Mario Monti Sept. 22 that the carmaker, which controls Chrysler, wants to strengthen its position as an exporter. The Italian Economic Development Ministry and Fiat set up a working group to help with the export push, Marchionne said last week.
“We need to find an agreement quite rapidly, we can’t wait forever,” Marchionne told reporters in London. “We need some assistance; we can’t do everything by ourselves. We must create conditions in Italy” to export.
The Italian manager, who grew up in Canada, has been urging his European counterparts to come up with a plan to cut overcapacity throughout the region. Fiat, which shuttered a plant in Sicily at the end of last year, has focused on temporary layoffs, as opposed to permanent job cuts, as a response to the contraction, he said last month.
Fiat’s Italian plants are running at 50 percent of capacity, Marchionne said. That compares with an industry average of 70 percent in Europe, according to Deutsche Bank. IHS Automotive estimates that Chrysler will use 100 percent of its capacity in North America this year.
“I don’t see this as a long-term plan for the group,” said Jeff Schuster, senior vice president for researcher LMC Automotive in Troy, Michigan. “Motives for considering any shifting of volume from domestic to import for the U.S. market are more political as Fiat faces many challenges in Italy.”
Fiat dropped as much as 9 cents, or 2.2 percent, to 4.25 euros and was down 1.7 percent as of 1:15 p.m. in Milan trading, giving the company a market value of 5.33 billion euros.
The industry will use 89 percent of capacity in North America in 2012, according to IHS, up from a low of 51 percent in 2009. Chrysler used just 41 percent of its capacity at its nadir that year, IHS says.
“We have taken a different tack because of our involvement with Chrysler in the United States by effectively attempting to find a solution which is outside of the European confines,” Marchionne said during a Sept. 27 press conference in Paris.
Marchionne is evaluating the possibility of building the Dodge Dart at the Cassino plant near Rome, where Fiat assembles its Alfa Romeo Giulietta, one of the people said.
Exporting cars to the U.S. “is a big bet on currency,” Max Warburton, an analyst at Sanford C. Bernstein Ltd., said Oct. 10 in a note to investors. “But Chrysler is almost out of spare capacity and the Dodge Dart is built on the same platform” as the Giulietta.
Fiat may also resume its investment plan for the Mirafiori plant in Turin, a giant facility that covers an area about half the size of New York’s Central Park, one person said. About 5,500 employees at the factory work just a few days a month and will produce fewer than 50,000 Alfa Romeo Mito hatchbacks this year. The plant’s official capacity is about 250,000 vehicles.
Marchionne faces pressure from politicians and union leaders in Italy after backing off an initiative called “Fabbrica Italia.” Under that plan, Fiat was to spend 20 billion euros to boost production in the country in exchange for labor concessions.
Fiat will invest in Italy “at the right moment to develop new models to catch any recovery of the European market,” according to a Sept. 22 joint statement with the government. Marchionne has said he doesn’t expect any recovery before 2014.
“With a dramatic contraction of domestic demand, one of the few chances Italian companies have is to boost exports,” said Giuliano Noci, associate dean at Milan Polytechnic Business School. Lowering taxes to help lift “sales outside Europe would be welcomed by every Italian entrepreneur, not just Marchionne.”