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Fiat Weighs Closing Another Italian Car Factory

July 04, 2012

Fiat SpA Chief Executive Officer Sergio Marchionne

Fiat SpA Chief Executive Officer Sergio Marchionne said he may close a second Italian factory as European auto deliveries sink for a fifth straight year. Photographer: Michele D'Ottavio/Bloomberg

Fiat SpA (F) Chief Executive Officer Sergio Marchionne said he may close a second Italian factory as European auto deliveries sink for a fifth straight year.

Fiat will shut another plant after closing one in Sicily last year unless it can come up with an economically viable plan to use excess capacity to build cars for North America, Marchionne told reporters late yesterday in Turin.

Fiat has delayed the introduction of new models in Europe and is cutting investment in the region by 500 million euros ($630 million) this year. Marchionne, 60, said yesterday that he expects European car sales to remain at about the current level for two to three years. Fiat’s first-quarter operating losses in the region almost doubled to 207 million euros.

“If that is the demand in Europe, there is at least one extra car plant in Italy,” Marchionne said, who’s seeking more flexible work rules from unions. “If we manage to utilize the capacity to export to the U.S., this issue will disappear.”

Fiat shares rose as much as 2.1 percent to 4.22 euros and were up 1.7 percent as of 11:06 a.m. in Milan. PSA Peugeot Citroen (UG), which plans to buy out Fiat’s interest in a French van factory and lower production there, declined as much as 2.3 percent to 7.54 euros in Paris.

The drop in European car sales accelerated in May to 8.4 percent, the eighth consecutive monthly decline, according to the Brussels-based European Automobile Manufacturers’ Association, or ACEA. Fiat, Peugeot and Renault SA (RNO) have posted the steepest slumps in the region this year, plummeting 15 percent or more in the first five months.

Fiat Layoffs

The Italian carmaker extended temporary layoffs for about 5,000 workers, mainly white-collar staff, at its executive headquarters in Turin for 14 working days starting from July 30, a union official said this week.

Competitors are also reducing costs. General Motors Co. (GM:US) announced plans last month to close a factory in Bochum, Germany. Peugeot, Europe’s second-largest carmaker, plans to cut as much as 10 percent of its French workforce this year, more than previously announced, a union official said this week.

“They will raise the job cuts target in France alone to 8,000-10,000,” Christian Lafaye, the head of Peugeot’s second- biggest union FO, said in an interview. Paris-based Peugeot said in November it aimed to reduce headcount by 6,000 in the region.

Peugeot Cuts

Chief Executive Officer Philippe Varin told unions last week that the carmaker will need to raise its 2012 savings target of 1 billion euros, according to Franck Don, a CFTC union representative.

Peugeot’s French factories in Aulnay, which employs 3,300, and Rennes are most at risk of being shut as an alliance with GM announced earlier this year adds to pressure, Don said last month.

“Closing plants is a necessity and a step closer in the right direction,” said Kristina Church, an analyst at Barclays Bank Plc with an underweight/neutral recommendation on both Fiat and Peugeot. “The situation in the European car market is worsening and remains very dependent on the macroeconomic environment.”

The French government doesn’t plan any new subsidies for car purchases, Labor Minister Michel Sapin said today in an interview on RMC Radio. Yesterday, Prime Minister Jean-Marc Ayrault said his government would lay out a plan to help the automotive industry by the end of the month.

Price War

As part of the industry’s realignment, Peugeot plans to buy Fiat’s 50 percent stake in the Sevelnord factory, according to a union official. The company’s managers called for a works council meeting on July 11 to discuss the plan, Ludovic Bouvier, a representative for the CGT union at Sevelnord, said in a phone interview. Peugeot plans to reduce the factory’s production to 24 vehicles per hour by the start of October from 30 now, Bouvier said.

Pierre-Olivier Salmon, a spokesman for Peugeot, confirmed the agenda for the works council meeting, while declining to comment further. The Sevelnord plant, located near the northern French city of Valenciennes, builds the Scudo commercial van for Fiat. The partnership with Peugeot won’t be renewed when it expires in 2017, the French automaker said in May 2011.

Overcapacity in Western Europe may more than double to about 2 million vehicles in 2012, according to IHS Automotive. Marchionne, who is also president of the ACEA trade group, has been urging the industry to take action to reduce capacity.

Marchionne said late yesterday that the introduction of a revamped Fiat Punto compact would be a “failure” because the European auto market is suffering from a price war as well as lower volumes.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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