Fiat Threatens to Quit Italy

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Caterina Gurzi, an assembly line worker at a Fiat assembly plant in Turin, Italy, has seen her share of crises over the past 32 years. Yet the current economic slump tops them all, says the 55-year-old, one of 12,000 workers who took part in a one-day strike on Oct. 21 to protest Fiat’s attempts to extract concessions from its unions. “We have never seen something like this before,” Gurzi says. “After weakening our rights and worsening our working conditions, Fiat leaves us with an uncertain and precarious future.”

Fiat Chief Executive Officer Sergio Marchionne, who has threatened to cease manufacturing in Italy if he cannot bring down operating costs, exhibited little sympathy for the plight of Gurzi and her fellow demonstrators. “The worst and most offensive part of this whole story is that we are living in a period of tyranny from a minority,” said Marchionne at an Oct. 24 event in Turin.

The standoff between Italy’s largest manufacturer and Fiom-Cgil, a hard-line metalworker’s union that represents some 12 percent of Fiat’s Italian workforce, is emblematic of the challenges facing the country. Italy’s industrial competitiveness has been eroding steadily as policymakers drag their feet on enacting labor reforms and slashing red tape. At the same time, Eastern European rivals have been working to improve conditions for investors. In a June report, the World Bank ranked Italy No. 87 in terms of ease of doing business; Hungary, Poland, and the Czech Republic all earned better scores.

Fiat’s 22,000 factory workers in Italy assembled 650,000 cars in 2009, while the 6,100 employees at its plant in Tychy, Poland, built 600,000 vehicles. Without taking into account differences in models or working hours, the Italian workers each made 30 cars a year on average, compared with almost 100 in Poland. Auto workers in Italy earn €27.69 ($38.55) an hour, more than three times the €7.52 in Poland, according to data from German car industry group VDA.

The productivity gap is weighing on Fiat, which is losing an estimated €800 million a year in Europe, mainly because of weakness in its home market, where sales hit a three-decade low this year. To cope with the slump, the company has delayed introduction of new models and resorted to furloughs. Fiat’s Italian plants operated at just 33 percent of capacity in the first half of 2011, compared with 73 percent at the carmaker’s other European factories, according to a Sept. 20 company presentation.

Marchionne wants Fiat’s Italian unions to agree to more flexible hours and to limit strikes and curtail absenteeism. To win support for the changes, the CEO has dangled a €20 billion investment plan christened Fabbrica Italia. The carmaker also has moved production of its Panda subcompact back to Italy from Poland.

While other unions are on board, Fiom’s resistance could delay the introduction of new work rules. In the meantime, with no signs of an imminent rebound in sales at home, Fiat is preparing to mothball a factory in Sicily and has postponed production of new models at its oldest plant in Turin by at least six months, to the second half of 2013. The company has also pushed back the introduction of a new Alfa Romeo. “The Fabbrica Italia plan doesn’t exist anymore,” Maurizio Landini, Fiom’s head, said at a press conference in Rome on Oct. 19. “There are no new models, market share is falling, and temporary layoffs are increasing. Fiat workers, not its managers, want to keep the company in Italy.”

A prolonged impasse with the unions could tempt Marchionne to follow through on his threat to shift production to other locales in Europe and North America-a move that would be made easier by Fiat’s ownership of a controlling stake in Chrysler. This would send a terrible message, says Stefano Da Empoli, an economist who chairs the I-Com institute for competitiveness in Rome. “If Fiat gives up on its challenge to grow in Italy and moves abroad, it will become a metaphor for a country that cannot be reformed, that has lost its hopes in the future,” says Da Empoli.

Within Italy, pessimism abounds. Business confidence fell to a two-year low in September. To cope with the crisis, Prime Minister Silvio Berlusconi’s government passed a €54-billion package of spending cuts and tax increases in August, while Bank of Italy Governor Mario Draghi, who will step down on Nov. 1 to take the reins at the European Central Bank, has been pushing for a structural overhaul, including labor market reforms. Italian youth, one-third of whom are unemployed, have taken to the streets to vent their anxiety. An Oct. 15 rally in Rome, part of the Global Day of Rage demonstrations coordinated by the Occupy Wall Street protesters, turned violent, causing more than 100 injuries and €5 million in damages.

Michel Martone, professor of labor law at Luiss University in Rome, senses that a day of reckoning is at hand. “Something is really going to change in Italy,” he says. “People are starting to understand that there is no more time for ideological conflicts. It is time to move forward.”