Fiat Threatens to Shift Alfa Romeo Revamp Outside Italy

Fiat SpA threatened to move production of new Alfa Romeo models abroad as Italy’s labor rules hamper its ability to compete with Bayerische Motoren Werke AG for luxury-car buyers.

Fiat has put new investment in Italy on hold 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, Chief Executive Officer Sergio Marchionne told reporters yesterday in Turin.

Alfa Romeo and Maserati are critical to Fiat’s effort to end losses in Europe by 2016. The Turin-based company, which controls Chrysler Group LLC, plans to invest more than 2 billion euros ($2.56 billion) on the brands to develop eight Alfa Romeo models and six Maseratis. Those models were targeted for production in Italy to fill under-used factories there.

“The relaunch of Alfa Romeo will continue for sure,” Marchionne said. “Italy should decide if they want it to happen here or not as Fiat and Chrysler have several alternatives.”

Fiat will roll out the Ferrari-powered Maserati Ghibli and start deliveries of the new Alfa Romeo 4C sports car this year to boost exports of upscale cars outside Italy after European losses widened to more than 700 million euros in 2012. Its plans with Alfa Romeo and Maserati target the dominance of BMW, Volkswagen AG’s Audi and Daimler AG’s Mercedes-Benz in the luxury-car segment.

Disturbed Idyll

“The only weapon we have is to get a slice of the high-end market, which we haven’t been able to tackle in the past because of laziness or inability -- leaving our German friends alone,” Marchionne said. “We want to disturb the idyllic environment they’ve created for themselves.”

Fiat shares rose as much as 3.2 percent to 5.78 euros and were up 2.6 percent at 12:41 p.m. in Milan trading, making it the best performer in the 13-member Euro Stoxx autos and parts index. The stock has surged 51 percent this year, valuing the company at 7.18 billion euros.

Fiat needs “clear and reliable rules” before investing in more projects in its home country, including new models at its main Mirafiori plant in Turin, the CEO said yesterday at the SevelSud plant in Italy. Fiat will invest more than 700 million euros with PSA Peugeot Citroen to build new vans at this site.

The halt on new projects calls into question 11 high-end models, including the Alfa Romeo Giulia sedan and the Maserati Levante sport-utility vehicle. These cars were scheduled to be produced in Italy by the end of 2016 and now could be moved to other countries where Fiat and Chrysler have assembly plants.

Recovery Key

“Utilizing Italian plants is key to Fiat’s recovery in profitability as they more or less ruled out plant closures,” said Sascha Gommel, an analyst with Commerzbank AG in Frankfurt. “If they moved production abroad, Fiat would need to reduce capacity in Italy, which would lead to a political backlash.”

Fiat is in a legal dispute with the Fiom union over labor rules, including longer shifts and shorter breaks. Fiom, which claimed the new rules are anti-union, didn’t sign a new contract leaving it without representation in Fiat’s plants in Italy. Fiom, which is part of Italy’s biggest union Cgil, won a ruling by Italy highest court on July 3, which said part of Italian labor law is unconstitutional, as all workers should be represented.

Marchionne said yesterday he’s open to meet the head of Fiom, even though he doesn’t plan to modify the contracts.

No Progress

Fiat, which relies on Chrysler for profit, isn’t nearing an agreement with the United Auto Workers retiree health-car trust to buy the rest of Chrysler, Marchionne said yesterday. The company doesn’t expect to sign a deal before Fiat’s board meets July 30 to review first-half results, he said. Fiat owns 58.5 percent of the Auburn, Hills, Michigan-based carmaker and is seeking to buy the rest.

Fiat, which exercised a third option to buy an additional 3.3 percent of Chrysler earlier this month, has yet to take possession of the shares attached to any of the options because the company is in a court with VEBA over the price of part of initial tranche.

Fiat asked Delaware Chancery Court last year for a ruling in the valuation dispute. Marchionne has estimated the process would be completed by the end of September. The judge may also call for a trial, which could push back a final decision for as long as a year, U.S. law professors said in June.

“We’ll follow legal procedures, if it takes one year, we will wait for one year,” Marchionne said. Regardless of the court process, “we’ll keep on exercising our options every six months.”

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