Fiat expansion stirs resentment in Italy's south

Staring at the locked gates of a Fiat car factory, Mimmo Vacchiano says many families in this poor corner of southern Italy face a stark choice unless its turnstiles reopen.

If they close this plant, there's nothing else here, only unemployment or the mafia, said Vacchiano, a 48-year-old father of two. Here, it's not like northern Italy, where you can find another job. We're living in panic.

Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry in the nearby port of Naples has closed, tightening the grip of the ruthless Camorra crime gang on the economy of one of Europe's most depressed regions.

Residents now fear they may pay the price for cash-strapped Fiat's high-stakes strategy to survive the global recession by expanding to become the world's second largest car maker.

Unemployment in Pomigliano already runs at nearly 20 percent and Fiat's temporary closure of the plant -- in a bid to slash costs like other major car makers -- has brought the town to its knees. Fiat employs 5,000 people directly here but the plant provides jobs for 20,000 if suppliers are taken into account.

Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S. auto maker Chrysler and wants to buy the international operations of struggling General Motors, including Germany's Opel. This has raised fears of job cuts in Italy, especially in Pomigliano and at Fiat's Termini Imerese plant in Sicily.

Workers in Pomigliano, among the most militant in Italy, have already clashed with police despite pledges from Fiat and the government that the plant may be downsized but not closed.

Shutting this plant would cause a revolt, said Vacchiano, standing with angry unionists who say Fiat has refused to talk to them. If they buy Opel, they'll be doing it with money made off our backs!

Fiat CEO Sergio Marchionne has said he will only meet unions once he has a clearer idea of the Opel deal. But with Fiat idling the plant for weeks at a time, workers say monthly welfare payments of about 700 euros ($950) are not enough.

On the winding main street, some stores have shut down and in the square men sit idly on park benches. Rubbish litters doorways and washing dries on lines outside apartments where three generations of families live.

In his office in the dilapidated municipal building, Mayor Antonio Dellaratta says Prime Minister Silvio Berlusconi's center-right government has a duty to step in.

This could bring the local economy to its knees. High unemployment and insecurity would bring this town to collapse, he said. We're in favor of this Opel merger but production must stay here. We must insist on that because Fiat is Italian.

RISKY MOVE

Founded in 1899 in the industrial town of Turin, Fiat quickly grew to become the country's largest industrial group, transforming the Agnelli family that controls it into the closest thing Italy now has to royalty.

Fiat has factories from Brazil to Poland, luxury brands such as Maserati and Ferrari, and interests in insurance, technology, advertising and publishing, including La Stampa newspaper.

But by the early years of this decade, the sprawling group had become bureaucratic and loss-making. The 2004 appointment of Marchionne as chief executive helped revive its fortunes.

He stripped away middle management while keeping good relations with blue-collar unions, re-entered major foreign markets and launched fuel-efficient small cars.

With the auto sector suffering its worst downturn in decades, Marchionne believes only a handful of giants will survive. He launched a deal-making spree to catapult Fiat's output over the 5 million cars a year mark, which he says is key to profitability.

Some analysts say Fiat, facing 5 billion euros in debt payments this year and already burning its way through its cash reserves, may have bitten off more than it can chew.

There is that risk, said Adam Jonas, auto analyst with Morgan Stanley. But the risk of doing nothing is even greater.

With European car sales down by nearly one-fifth, Volvo has already laid off staff, while Peugeot Citroen expects to post a 2009 loss and even market leader Volkswagen has cut investment.

Jonas says Marchionne wants to make Fiat, which lost 48 million euros in the first quarter, too big to fail so it can press governments for aid and negotiate the terms on its debt.

Marchionne may be making promises he cannot keep but ... Fiat is fighting just to survive the next two years, so it can then try to survive the next five to 10, he said.

PROMISE NOT TO SACK

Berlusconi, a media tycoon whose approval ratings have so far survived the downturn, has unveiled 1.7 billion euros of incentives to stimulate the auto sector which accounts for 11 percent of gross domestic product and 380,000 jobs.

Like others in Europe, his government has promised cash -- up to 1,500 euros -- for Italians to trade in their old cars for new, greener models, but it said the scheme relied on a promise from Fiat not to close any plants.

The maintenance of the five (Fiat) plants in Italy is non negotiable, Industry Minister Claudio Scajola told journalists on Tuesday, asked about possible factory closures.

Already laboring under the euro zone's heaviest debt and rebuilding after an earthquake in April, Italy's government may have limited scope to prop up the sector. But Fiat thinks it will need billions to make the GM deal work.

Facing competition from Austrian-Canadian parts maker Magna for Opel, Fiat makes public its proposal for the operation this week. Germany's government, which faces elections in September, is also pressing hard to avoid plant closures.

Part of the problem for Pomigliano is that fuel-efficient models which have driven Fiat's recovery -- earning praise from U.S. President Barack Obama -- are mainly produced overseas.

Pomigliano makes luxury Alfa Romeo models like the sporty GT and aging 147, now in its eighth year of production. Sicily's Termini Imerese plant makes Lancias, which a German trade paper said risked being dropped in favor of Opel.

A draft of Fiat's Project Phoenix for the deal shows Pomigliano being downsized and Termini Imerese assigned another purpose outside car production within the Fiat group. But local politicians say Fiat has an obligation to the struggling region.

We want Fiat to unveil a plan to escape this crisis, to make ecological cars here, said Dellaratta in Pomigliano. The government must give south Italy the infrastructure, technology and research facilities to compete with the north and Europe.

Once home to steel mills and refineries, a steady industrial decline in the Naples' area since the 1980s has left a legacy of environmental contamination, which has ruined agriculture and caused rising rates of leukemia and tumors, local doctors say.

Unemployment provides foot-soldiers for the Camorra, one of Italy's most brutal crime networks with interests from textiles to waste disposal and drug trafficking. With a huge black market economy, half the population of the south is outside the labor market and not even looking for a regular job, data show.

Meanwhile, the official unemployment rate in the south runs at three times the north's rate, at over 12 percent, making a regular job a dream for many young Italians here.