Fiat, Italy disagree on maintaining domestic output

Fiat SpA's standoff with the Italian government over production intensified as the carmaker said it would halt output at a Sicilian plant amid worker concerns that the company is moving manufacturing out of the country in concert with Chrysler Group LLC.

Italian Industry Minister Claudio Scajola urged Fiat Chief Executive Officer Sergio Marchionne today to increase the number of cars made in Italy in exchange for continued consumer incentives. At a meeting in Rome, the CEO stuck to his plan to halt car production at Termini Imerese in 2011 despite Scajola's insistence it stay open following union protests.

"Let's be clear: We expect a significant increase in car production in Italy, which is too low right now," Scajola told reporters after the meeting. Italy wants to keep the Sicilian facility open even if Fiat decides to stop making automobiles there.

"The plan for Termini Imerese isn't changing," Marchionne said after the meeting. Fiat will stop production of the Lancia Ypsilon there after 2011 and then use the factory for unspecified "non-automotive production," he said in June. The company has 1,400 workers at Termini Imerese, the smallest of five Italian plants.

"The tradeoff seems to be increasing the production of cars in Italy in exchange for shutting it down at Termini Imerese," said Massimo Vecchio, an automobile analyst at Mediobanca SpA who has an "outperform" rating on the stock.

At a Loss

Fiat says it loses 1,000 euros ($1,500) on every vehicle produced at the Sicilian plant, partly due to a lack of infrastructure and the cost of shipping auto parts to the island. Scajola wants Marchionne to specify what kind of production would be continued.