Aug. 27 (Bloomberg) -- Fiat SpA plans to extend temporary layoffs at its main Mirafiori auto factory in Italy amid slumping car demand in Europe and a dispute with unions over labor contracts, three people familiar with the matter said.
About 5,300 workers at Fiat’s oldest and largest factory, which is located in its hometown of Turin, will be asked to stay home for most of the next year after an existing agreement expires at the end of September, said the people, who asked not to be identified before an official agreement.
Fiat, which closed a plant in Sicily in 2011, has focused on temporary layoffs rather than permanent job cuts in response to a six-year decline in the European car market. In a bid to rehire all its Italian workers by 2016, Fiat plans to add upscale models from the Maserati and Alfa Romeo brands to fill capacity at under-used factories.
The current strategy leaves workers in “limbo, which a company with clear plans should abandon,” said Carlo Scarpa, a professor of industrial economy at Brescia University. “While I understand fears to invest now with Italy still in recession and other countries just exiting from it, there are few doubts that there will be a growing demand three years from now,” especially for high-end cars.
The shares dropped as much as 22 cents, or 3.6 percent, to 5.79 euros, the lowest since July 17, and were trading down 2.4 percent as of 3:55 p.m. in Milan. The stock has gained 54 percent this year, giving the Italian company a market value of 7.3 billion euros ($9.78 billion).
Fiat’s aim to extend the furloughs, which help the company save costs and avoid overproduction, could spark further tension with unions, which have objected to Chief Executive Officer Sergio Marchionne’s plans to delay promised new investments in Italy.
“If Fiat wants to prolong layoffs at Mirafiori, they must come with a final investment plan for the factory,” Ferdinando Uliano, head of the Fim Cisl union, said in a phone interview.
The company’s management will probably meet with union leaders at the beginning of September to discuss the plan, the people said. Fiat representatives declined to comment.
Fiat built 11,000 cars in Mirafiori in the first half, according to the Fim Cisl union. The factory has capacity to makes as many as 300,000 cars a year. Fiat first started temporary layoffs at the plant in April 2012 to retool for new models. Currently, about 2,000 people work three days a month on average to build the Alfa Romeo MiTo hatchback at the factory.
The workforce at the Mirafiori site, which was opened in 1939 in the presence of Benito Mussolini, peaked at 50,000 in the 1970s. The number fell in subsequent decades as Fiat opened plants in the south of Italy and moved production abroad. This year, the number of employees at the plant, including those furloughed, was 5,315, according to Fim Cisl.
The Mirafiori plant may build the Maserati Levante, the brand’s first sport-utility vehicle, Marchionne said in January.
As part of a deal with unions, the Italian carmaker might confirm a plan to start building the luxury crossover at the plant by 2015, two of the people said. Other options have also been evaluated, and a decision isn’t yet final as investment in Italy is on hold, the people said.
The Italian manufacturer narrowed its operating loss in Europe by 48 percent to 185 million euros in the first half by cutting costs and reducing spending on developing new cars.
Fiat halted new investment in the country in July as it pushes Prime Minister Enrico Letta’s government to adopt reforms that help manufacturers with clearer work rules after Fiat’s labor contracts suffered a setback in Italian courts.
Marchionne and Fiat Chairman John Elkann met Letta earlier this month to discuss the company’s investment plans. The Italian government is pressing Fiat to boost manufacturing in its home country as the country struggles to overcome a cycle of recessions in the recent years.