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Italy: Labor Reform Stalls As Carmaker Fiat Drives Deeper Into Trouble

  • Breffni O'Rourke

Italy's biggest company, the carmaker Fiat, is continuing to slide into financial crisis, and has announced plans to cut its workforce by more than 8,000 people. The conservative government of Prime Minister Silvio Berlusconi has moved in the past to push through free-market reforms of the country's labor laws. But its reaction to the Fiat crisis has been more traditional -- intervening in the private sector with a job-saving support package. As RFE/RL reports, policy seems to be giving way to practical necessity in the Fiat case.

Prague, 14 October 2002 (RFE/RL) -- The Italian carmaker Fiat has always been a lively company. In the early years of the 20th century, when automobiles were a new phenomenon, Fiat's so-called "torpedoes" contested the fearsome road races of the time.

Between the world wars, the company built luxury and touring cars. In the 1960s and '70s, it had a range of snappy sports cars to enhance "la dolce vita."

But Fiat's fame rests above all on its small -- one might say miniscule -- cars. A tiny two-seater was introduced in the late 1930s and an enthusiastic public immediately dubbed it the "Topolino" -- or Mickey Mouse, after the cartoon character who was also new at that time.

The cars' popularity continued after the war into the 1970s, with the Fiat 500 becoming the symbol of carefree times at the beach or in the countryside. At the same time, an innovative policy of marketing and local manufacturing led to Fiat models becoming a common sight in the then-socialist countries of Central and Eastern Europe.

But the cheers have gradually died away. Fiat's conventional range of vehicles have for some time failed to catch the public's interest, and sales have dwindled, even in the key home market. Fiat is losing hundreds of millions of dollars a year, and a restructuring plan published last week foresees the closure of two plants and the loss of over 8,000 jobs -- a fifth of Fiat's employees in Italy.

In Rome, meanwhile, there's the government of Prime Minister Silvio Berlusconi. The premier, a free-wheeling media tycoon by background, has promoted the modernization of labor-market rules to make them fit the current free-market principles of flexibility and efficiency -- meaning quicker hiring and firing.

Berlusconi may be a conservative, but as a politician he is not eager to see 8,000 jobs be lost. Also, as some analysts have noted, a key member of the ruling coalition is post-fascist National Alliance leader Giancarlo Fini -- and Fini's main electoral base is public-sector employees in the country's south.

As a result, the government is now saying it wants to halt the closure of the two Fiat plants and protect its workers from layoffs. There are, however, no details on how it will do this -- particularly at a time when Italy's economy is already sluggish and suffering from a large budget deficit.

Industry analyst Paul Horrall of the London-based "Car" magazine points to the irony of a pro-free-market government intervening in the private sector: "It's interesting that Berlusconi as a conservative is an arch-capitalist, and he is refusing to allow Fiat to act as a capitalist entity."

Speaking from Fiat's headquarters in Turin, spokesman Raffaello Porro says the government plan is meant to open up "new perspectives" for the company. He says Berlusconi and top Fiat managers met yesterday to discuss ways to salvage the company. "There is now a technical table [of the two sides] open, and the target now is to find a final plan by the end of October. [There] are no other comments to make."

Reports say the government might decide to inject cash into Fiat. Additional financing may come from Italian lending banks and the U.S. auto giant General Motors, which already owns 20 percent of the carmaker.

Berlusconi's office says any rescue will be based on "market options" -- a reference to concerns that European Union rules of competition prohibit state subvention of private industry.

So what will happen to Fiat? Can Italy's greatest corporate symbol survive? Industry analyst Mark Bursa of the "Financial Times' Automotive Emerging Markets" magazine, says the situation is dire: "I'm not sure they can [survive]. At the moment it's looking very grim. Sales seem to be going down everywhere. The strategy they [previously] came out with did not seem to work."

Bursa notes the comparative unpopularity of the present range of Fiat models, saying the company has been left behind by competitors like Peugeot, Renault, Ford, and some of the Japanese carmakers.

On that score, analyst Paul Horrall of "Car" magazine says there is at least some hope on the horizon: "They have got two very important products coming next year. One in the second quarter and one in the fourth quarter. [The first] is the new small car which replaces the Seicento [600]." The second is a larger Punto-size vehicle, and both will be important in increasing the company's revenue base.

Both Bursa and Horrall say that if Fiat is to be restored to health, the most likely route will be through a takeover by General Motors. Under the present arrangement, Fiat has the option to sell itself entirely to GM in 2004. But the analysts say the task might be a difficult one to carry through, even for the U.S. giant.

But, Bursa notes, GM is acquiring the South Korean company Daewoo. Cooperation between Daewoo and Fiat on the development of small cars would make economic sense.

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