Fiat CEO Sergio Marchionne’s ambitious project to build 6 million cars a year by 2014 together with Chrysler may be running into resistance from unions in Italy reluctant to adapt to the new world order.

But there are workers in this economically depressed southern Serbian town ready to sign on.

Facing intransigence back home in Italy, Turin-based Fiat is ramping up plans for the sprawling communist-era Zastava plant in Serbia, plowing $700 million into hazardous waste cleanup and new assembly lines that will soon put some 3,000 people to work.

Zastava, best known abroad for making the Yugo compact exported to the United States in the 1980s, has at least symbolically been drawn into Marchionne’s battle with Italian unions to achieve more flexible work rules as a condition for a whopping (EURO)20 billion investment in Italy’s underutilized plants to more than double national production.

This summer Marchionne said Serbian workers would build small minivans previously planned for an Italian plant. And he has made clear that if unions in Italy don’t agree to more flexible work conditions, still more investment will go abroad, a sign of Marchionne’s determination to forego Fiat’s Italian home base, if necessary, to find the efficiencies and alliances the company needs.

The prospect is bittersweet for Serbian workers but they’re not saying no.

“Normally, any job that would come here, for our workers, is welcome. But we are not the ones who would like to see workers in another country lose jobs over that,” said Zoran Mihajlovic, the head of the Zastava auto union. “I hope both workers in Italy would have jobs and the workers in Serbia would gain new models.”

If economic neglect has made the city of 180,000 a living museum to the old Yugo, where long-archived models like the Florida and Koral ply the streets, its aim is to become a monument to economic development in a country that has lagged by some two decades in the transition from a Socialist to free market economy.

Shift change at the plant is not what it once was when 18,000 workers pumped out hundreds of thousands of Yugos a year.

Lone workers trickle out of the gate, singly or in pairs, trudging over the bridge homeward or slipping behind the wheel of an old Yugo, the boxy compact that started for under $4,000 but was widely viewed as one of the worst cars in automotive history, largely for quality. Yugos are still the only car many can afford, in a town where boarded-up storefronts and cafes full of working-age men testify to economic hardship.

Some 10 months after Fiat moved in, production is still slow, but workers’ can look forward to better days ahead.

“We hope to have more work. We think it is going to be better,” said Rajko Maletic, a 30-year Zastava veteran crossing the railroad bridge outside the plant after work.

Marchionne has been sparring with Italian unions since he announced plans to close a plant in Sicily due to the high cost of bringing in parts from the mainland for assembly, a move that even drew censure from the pope. But the tone sharpened when he pushed for, and won, more flexible work rules at the Pomigliano plant near Naples and again when three workers were fired in the southern Italian plant in Melfi for alleged sabotage.

The Pomigliano deal guaranteed the transfer of the new Panda to Naples, from the plant Fiat has run in Poland for 20 years.

FIOM has called the Pomigliano contract “illegal” and “unconstitutional,” terms which Marchionne rejects. The contract gives Fiat more leverage in combatting absenteeism and preventing strikes in periods when the factory is running on a full 18 shifts, conditions Marchione wants extended to Italy’s other factories by the end of the year.

Or, he has threatened, the (EURO)20 billion investment will go elsewhere.

“We did not choose the rules of international competition, and we don’t have the possibility to change them, even if we don’t like them,” Marchionne said in a personal letter to Italian workers this summer. “The only thing we can choose is to be in or out of the game.”

Marchionne has praised the United Autoworkers Union, part owner of Chrysler, for its open relationship with Chrysler management. But he remains befuddled by the Italian intransigence. The “Plant Italy” project would raise production in Italy to 1.4 million in 2014 from a dismal 650,000 last year, more than two-thirds of which would be for export, a boost for Italy’s export-dependent economy.

“Even though I have said publicly that I think hopefully the Europeans can take that as a model of collaboration, we keep on running into obstacles,” Marchionne said on the sidelines of the Paris Auto Show. “I am not trying to create the same conditions in Europe as exist in the U.S. but the degree of transparency and openness and acceptance of change that we have seen with the Americans, is something that is commendable and it is something that should be adopted in Europe.”

Marchionne is moving to separate the auto maker part of Fiat from its farm, construction and truck businesses in a move that will allow it to integrate, and perhaps one day fully merge, with Chrysler LCC, which Fiat controls. The goal is to create the economies of scale he thinks are necessary to make money and thrive long-term.

Places like Serbia could benefit.

Serbian national unemployment is a Europe-high 19.6 percent, and economists believe the unofficial toll is much higher. Foreign investment is lagging and exports are weak.

Nowhere has the price been more clear than in Kragujevac, once the industrial center of Tito’s Yugoslavia, home to the Zastava arms, truck and auto plant. The massive 1.4 million-square-meter plant was idled by international sanctions during the Bosnian war, and bombed by NATO to halt Serbia’s violent crackdown on ethnic Albanians in Kosovo. There has been only token domestic production since.

Enter Fiat.

The Italian automaker committed (EURO)700 million in 2008 for a two-thirds share in a joint venture with the Serb government called Fiat Automobili Srbija (FAS). The plant started making Fiat-badged Punto Classics for the Serbian market in February, hitting their 30,000 Punto Classic this month.

Most of the investment so far has been to meet environmental standards at the factory that previously dumped waste into a stream, emitted polluting gas and was used as a depository for hazardous and radioactive materials after NATO attacks.

The government’s adviser to the joint venture, Aleksander Ljubic, said the plant will generate another four or five jobs in related fields for every one factory worker. Plus the plant will be an important generator of foreign exchange earnings as it was briefly 20 years ago when it exported Yugos to the United States.

Ljubic estimates Fiat exports will be worth (EURO)1 billion, one-sixth of current foreign exports of (EURO)6.5 billion.

“We always want to be part of the winning team,” he said.

By COLLEEN BARRY
October 15, 2010
Associated Press

• A Permanent Economic Emergency