Fiat Signals Deeper Cost Cuts

Loss-making Italian carmaker Fiat, majority owner of the Ferrari marque and Formula One team, has signalled it was moving towards deeper cost reductions to deal with significant excess capacity.

Fiat Auto Chief Executive Giancarlo Boschetti would not rule out further job cuts, saying the firm was struggling with excess capacity of 20 to 30 percent while working to maintain its product investment spending.

"If you reduce capacity by 20 percent you can find money for investment...That is what we are doing," he told reporters at a conference on Wednesday ahead of the Paris Auto show. He said the division was considering ways of cutting costs further.

"Our cost structure is not ideal...we are in the midst of a massive cost reduction programme," Boschetti said.

Boschetti reiterated the company planned to spend some 2.4 billion euros to 2.5 billion euros (1.5 to 1.57 billion pounds) annually in developing new products.

When asked whether Fiat Auto, which expects to post a loss of over one billion euros this year, would cut more employees he said, "Who knows?"

Fiat has made use of temporary lay offs so far this year but rigid Italian labour laws have hampered the group's ability to take wider action and any further management plans to axe jobs would be likely to prompt a major conflict with unions.

Union Wary of Cuts

Fiat's major labour union said last week the company could cut up to 6,000 more jobs in Italy as it battles slow sales and high debts, with the axe falling as early as next month.

"Between 5,000 and 6,000 more jobs will go. The only question is whether they will all come at once or bit by bit, like Chinese water torture," Giorgio Airaudo, head of metalworker union CGIL-FIOM told Reuters.

A cut of 6,000 jobs would represent nearly 15 percent of the Italian workforce of Fiat Auto. The company, Italy's largest private employer, cut 3,000 jobs in July.

Boschetti said Fiat Auto needed a minimum of 3.5 percent overall cost reduction each year. Suppliers would play a role in achieving that, but he did not offer specifics on his plans. Fiat Auto, which posted an operating loss of 823 million euros in the first half, plans to return to profit in 2004.

Boschetti said the company's performance in the third quarter was looking better than in the first half, in line with a previous statement that the company would have a significantly reduced second-half loss compared to the first half.

"It is better, yes," said Boschetti, "but I am not yet happy," he added.

Fiat shares were up 2.21 percent at 9.65 euros, in line with the DJ Stoxx auto index which was up 2.54 percent.

"Fiat clearly has to undertake more serious cost cutting and any signal that they are considering that is welcome, but we need details and actions," said one London-based auto analyst.

No Early Sale o GM Seen

Despite weakening trading conditions, Boschetti said he did not anticipate an early exercise of Fiat SpA's "put" option to sell its remaining 80 percent stake in Fiat Auto to General Motors.

GM took a 20 percent stake in the Italian carmaker in 2000 and agreed it could buy the rest from 2004 under the option given to Fiat. Asked if Fiat would try to bring the sale forward, Boschetti said, "No, from what I understand."

Nonetheless, he said joint ventures with GM in powertrains and purchasing were paying dividends.

"The cooperation with GM is substantial to us...the companies are aware that they need to exploit the situation with joint ventures," said Boschetti.

GM has said it expects annual cost saving for both companies to amount to $1.2 billion (770 million pounds) per year by 2003 and $2 billion by 2005. He said Fiat Auto would need to turn its fortunes around regardless of whether GM takes full control of the carmaker.

"For me, this would have to be done independently of being with GM."

Many analysts think taking on Fiat Auto would be a further blow to GM's European operations, also struggling to return to profit amid weakening demand. However, Bill Ford, chairman and CEO of the world's second-biggest carmaker Ford Motor said GM-Fiat could be a "very formidable competitor".

Boschetti also said there were discussions about the reintroduction of the Alfa Romeo brand to the United States, but he noted the cost of such a launch was prohibitive under current conditions.