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Italy gives Fiat too little and asks too much

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Italy gives Fiat too little and asks too much

July 27, 2010 - 11:45 pm ET

Italy needs to make building cars in the country more financially appealing to Fiat – and other automakers – if it wants to avoid losing future projects. That means the government has to reconsider its no-intervention policy regarding the auto industry.

Without incentives and tax breaks, Italy cannot compete with countries such as Serbia, which made Fiat a great offer to win production of the Fiat Multipla and Idea minivan replacements from the Mirafiori plant in the automaker's hometown Turin.

Fiat will pay 350 million euros ($454 million) in cash upfront to cover a 1 billion euro investment. The Serbian government will contribute 250 million euros, while the European Investment Bank will offer a soft loan for another 400 million euros.

By comparison, Fiat will have to cover the entire 700 million euro investment to relocate production of the next-generation Panda minicar to its plant in Pomigliano d'Arco, near Naples, from its overloaded factory in Tychy, Poland.

The plant in Kragujevac, Serbia, will work 12 shifts of 10 hours each and achieve nearly the same output level as the Pomigliano d'Arco plant that will operate 18 shifts of 8 hours each.

Serbia also will give Fiat a 10-year tax exemption on the cars built in Kragujevac. In addition to the normal income tax on profits, Fiat must pay Italy's so-called “IRAP” regional tax, which is basically an employment-based tax levied even if a company is losing money.

The Italian government and Fiat's local work force are furious about the planned production shift to Serbia, but what are they willing to do to prevent the shift?

The move is not an indication that Fiat is turning its back on Italy. The automaker is making a good business decision.

In a perfect world, an automaker would build most of its vehicles in the country where it was founded and thrived. But globalization has changed the rules of the game.

Read more: http://www.autonews.com/article/20100727/BLOG12/307279928/1198#ixzz0uzAbk9S2

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