IHS Global Insight Perspective | |
Significance | The chief executive of Fiat, Sergio Marchionne, has said that the automaker is set to change tack on its plans to revitalise production domestically following the difficulties winning the backing of unions and workers at its Pomigliano facility. |
Implications | Fiat now looks set to transfer production of a new MPV model from its Mirafiori plant to a new plant in Serbia, and this could also be followed by the shift of other models to reduce the dependency it had planned on local operations. |
Outlook | While Fiat is still aiming to lift domestic production of passenger cars this will now be around 1.15 million units, lower than the 1.4 million units initially expected, and could well fall further if it faces further reluctance amongst unions and workers in future. |
Fiat has downgraded its plans for making investments in Italy over the next five years following the recent difficulties in winning approval for its plans at the Pomigliano d'Arco facility in the country. The situation was revealed by the automaker's chief executive officer (CEO) Sergio Marchionne during a conference call following the announcement of its first-half 2010 financial results (see Italy: 21 July 2010: Fiat Reports Profits for H1, Board Approves Demerger of Industrial Businesses). He told listeners that Fiat had reversed the decision after failing to win sufficient concessions from workers at the site to assure its "governability," reported Automotive News Europe. Marchionne was also quoted by Dow Jones International News as saying that, "Given the difficulty we have encountered, Fabbrica Italia must be implemented at a much slower rate than originally envisioned." However, he added that "We will work with [the other] unions to bring Fabbrica Italia to completion, but Fiat cannot take unnecessary risks."
As a result of the difficulty in reaching an initial agreement at Pomigliano, the automaker will begin manufacturing the Panda there two months later than anticipated, with the start now planned for early 2012 instead of late 2011. However, an even more key move is its plan to shift production of its new small multi-purpose vehicle (MPV), codenamed L0 and set to replace the Fiat Idea and Lancia Musa, from the Mirafiori (Italy) plant to a facility in Kragujevac (Serbia). Automotive News Europe said that the investment in this facility is expected to result in production of levels of around 190,000 units per annum. The trade publication added that production of the replacement to the Alfa Romeo 159, the Giulia, and the replacement for the Chrysler Sebring at Mirafiori could also be at risk as well as plans to build a new compact sedan for Chrysler or Dodge at Cassino (Italy). In summing up, Marchionne added that the company would "continue to look at alternative sites."
In response to the announcement of the shift of the MPV from Mirafiori, Giorgio Airaudo, the secretary of the Turin branch of the FIOM union has told La Stampa, "If the relocation of production to Serbia was confirmed, there would be problematic perspectives for Mirafiori, which would deny the commitments Fiat made to unions on the 21 April." However, he added "We do not want to believe Fiat wants to disengage from Mirafiori, nor that Fiat wants to argue with Italian unions and workers by putting them in competition with other sites where heavy government intervention and subsidies are present." Airaudo went on to say, "If something has changed Fiat has to explain us and tell us if production of the compact MPV will remain in Mirafiori or will be coupled with the small MPVs."
Outlook and Implications
Fiat has signed up to making 700-million-euro-worth of investment at the Pomigliano plant to move production of the Fiat Panda there from Tychy (Poland), despite receiving a less positive response for its plans from workers than expected. Unions at the facility initially voiced their opposition to the new working conditions that would be required to secure the vehicle. Although it eventually won a buy-in from four of the five unions represented at the plant, when it came down to a crunch vote for workers, although the plan won a majority, it was not the overriding success that Fiat had hoped, with only 62% of workers offering their approval. What has perhaps forced Fiat's hand into pushing this new approach is that the FIOM union remains outstanding, and looks set to continue causing problems. Indeed, following the announcement that Fiat would proceed with production of the Panda at Pomigliano, a statement released by the FIOM called the decision to move forward without its support "a serious and mistaken act." Relations also seem to be deteriorating elsewhere in the country between the two parties. The FIOM is calling two hours of strike action tomorrow (Friday) as well as protests in Rome "to denounce the anti-democratic and threatening climate at Fiat," according to ANSA English Corporate News Service. This follows the dismissal of three FIOM delegates during the past week for transgressions.
As a consequence of these changes, the passenger car production targets set for the Fabbrica Italia by 2014 are now said by Marchionne to be 1.15 million units. Although this is still far greater than the 655,000 units that IHS Automotive saw for the group's brands in Italy during 2009, it is well below the 1.4 million unit level set out at the announcement of its mid-term plan in April (see Italy: 22 April 2010: Fiat Reports Q1 Net Loss, Announces Demerger of Industrial Units). Such a move is unlikely to win Fiat friends among its unions, and possibly the government. However, it cannot move forward with a plan in which it is expected to invest billions of euro which are not going to yield an adequate return, for the sake of retaining a significant production foothold in Italy. More so now than ever before, the automaker is an increasingly global business, and in order to remain competitive needs to take steps which enable it to do so. Its domestic unions and workforce can no longer hide behind national agreements which hinder the automakers progress in this direction, and unless they face up to these realities, we could well see production levels under this plan reduced further.