Fiat has revealed further investment to be made at its SEVEL light commercial vehicle (LCV) joint venture (JV) with PSA Peugeot-Citroën located in Italy, while CEO Sergio Marchionne has once again warned that investment could be delayed after a court case has gone against the company.
IHS Automotive perspective | |
Significance | Fiat has announced that it and PSA Peugeot-Citroën will invest around EUR700 million (USD898.9 million) in their SEVEL light commercial vehicle (LCV) joint venture (JV) |
Implications | Despite this latest announcement, CEO Sergio Marchionne has warned that the conditions are no longer ripe for investment after a court case relating to a labour dispute with the FIOM-CGIL union has gone against it. |
Outlook | This is the latest in a long line of threats and warnings as Marchionne hopes to gain leverage for a more preferential working environment to be offered by the Italian government and unions. |
Fiat has announced that it and its partner PSA Peugeot-Citroën are planning to undertake further investment at its Société Européenne de Véhicules Légers (SEVEL) joint venture facility located in Val di Sangro (Italy). In a statement released, Fiat revealed that the pair intend to invest EUR700 million (USD898.9 million) over the next five years in the site, which manufactures the Fiat Ducato, Citroën Jumper and Peugeot Boxer. Fiat will put in EUR550 million, and PSA will put in the remaining EUR150 million. The cash will be see the further advancement of the technology used at the site, including the installation of 60 body welding robots, 25 refurbished spray painting systems, a new assembly line and reorganisation of logistics. Fiat is also planning to implement its World Class Manufacturing operating system at the site. The company said that the investment will prepare the factory for "a wider range of products in order to meet evolving customer and market demands".
On the announcement, Fiat's chief executive officer (CEO) Sergio Marchionne has said "we are relaunching a bet together with Peugeot", adding that the company had already resumed investment, including the development of products and the work at the site.
However, he also took the opportunity to use the announcement to warn that the situation for further investment in the country is looking gloomier following a court decision to side with unions in a labour dispute last week. A hearing of the constitutional court on 3 July said that as a result of a clause in the country's labour laws the FIOM-CGIL union could represent workers at Fiat factories, despite having not signed up to new labour accords that result in greater flexibility and productivity. Marchionne was quoted by the Wall Street Journal (WSJ) at the event in Val di Sangro as saying, "I can't be responsible to put more capital at risk if we don't know how to behave ourselves with our counterparties," before calling on the Italian government to help resolve the situation. When asked about how this would affect investment at its Mirafiori site in Turin (Italy) – which along with its Cassino (Italy) site has yet to be guaranteed future investment – if the political process were drawn out, he said, "It would be a big problem." However, he said he would be prepared to meeting with the leader of the FIOM-CGIL union Maurizio Landini to discuss what measures could be taken, although with the proviso that there would be no revisions to the current labour agreement.
Outlook and implications
Reports that further investment was in the offing for this relationship circulated earlier this week (see France – Italy: 8 July 2013: Fiat, PSA to extend heavy van JV – report). However, while this looks set to result in the sites refurbishment in preparation for a heavily revised large LCV, it still is not clear whether this will see their relationship stretch past 2019, the current expiry date for what is known as the Sevelsud relationship. This is now the only part that remains following the decision by Fiat to pull out of the Sevelnord JV that manufactures mid-size LCVs at a site in Valenciennes (France; see France: 26 July 2012: PSA's Rating Downgraded by Moody's, Fiat Signs Agreement to Exit Sevelnord JV).
Marchionne's comments are the latest in a long line of warnings and announcements over the past five years that Fiat has yet again suspended investment. This will be once again used as a lever in order to get the Italian government – fearful of losing one of its largest private employers – and the union to meet his demands for greater flexibility from its workforce. He also may be looking to the new Italian government to resume a study into supporting the development of its domestic footprint into an export hub for shipments of its premium brand vehicles outside the European Union (EU). However, while there is definitely a strong argument for a revision to the country's labour laws to promote greater clarity – the clause which saw the constitute ruling in FIOM-CGIL's favour having been unearthed from the 1970's – the continued announcement and stalling of investment gives very little opportunity to effectively plan for the short-to-medium term, let alone the long term. This is hampering such groups as suppliers that are already coming under significant pressure from the already reduced numbers of vehicles being produced by the automaker. Although Marchionne will no doubt suggest he is responding to the tumultuous market place, there will have to come a point where a decision is made on whether the new range of Alfa Romeos is built in Italy or North America and run the risk of affecting the brand's equity. The question is whether Marchionne would have many alternative options if his Italian bluff was finally called.