"Next week we will send our technicians down (to the plant)," he told Corriere della Sera newspaper in an interview. "By the end of the year we will start spending."

Fiat's Melfi plant will therefore be the first to be re-tooled for new models outlined in the Italian carmaker's plan to fix its loss-making European business.

A sharp downturn in Europe has forced Marchionne to focus on bolstering the company's European activities instead of buying more shares in U.S. automaker Chrysler Group LLC, which it also controls, the company said on Tuesday.

Marchionne told Corriere della Sera on Thursday his new plan to increase investment in higher-margin models will enable the company to compete with Germany's premium car makers.

"Thanks to Chrysler (car platforms), we can leverage the Alfa Romeo and Maserati brands and become a nuisance to premium brand competitors," he said.

Asked if it was perhaps too ambitious to aim to compete with German car makers BMW (BMWG.DE), Mercedes-Benz (DAIGn.DE) and VW's (VOWG_p.DE) Audi, he said "just watch."

Fiat had previously put new investment in its Italian plants on hold pending an upturn in the European car market, which is in its fifth year of decline. Its decision to unblock investments was partly due to Italian Prime Minister Mario Monti's reforms, he said.

"Monti's Italy is a different Italy from the one I have seen in recent years," he said. "And it's one that's worth betting on."

(Reporting by Jennifer Clark)

• A Permanent Economic Emergency