Fiat to Cut 12,300 Jobs by 2006

Ferrari owner Fiat says it will cut 12,300 jobs as part of its last-ditch rescue plan.

As expected, Fiat Chairman Umberto Agnelli told journalists the loss-making company's board had approved a plan for a 1.8 billion-euro capital increase to help fund the company's third restructuring plan in two years aimed at returning it to profit.

Fiat will issue 368.5 million new ordinary shares priced at five euros each on a three new shares for every five already held basis.

Fiat Chief Executive Giuseppe Morchio also said Fiat would close 12 factories in 2003-2004, almost all of them outside Italy. He said Fiat would cut 12,300 jobs by 2006, the bulk of them also outside Italy. The plan would see breakeven for Fiat at an operating level in 2004.

Fiat shares, which have halved in value in the last twelve months, were suspended in Milan but the cost of insuring Fiat debt in the default swaps market rose by 100 basis points to 650 basis points.

Morchio's plan comes a year after Fiat launched a back-to-basics revamp that refocused on the under-invested car unit and sold other assets like an aluminium castings unit, part of its stake in energy group Italenergia and its stake in General Motors.

GM owns 20 percent of Fiat and the Italian firm has an option to sell the rest of the car unit to the Americans next year.