Is Fiat Considering A Pullback From Italy?

As the world struggles to come to grips with economic uncertainty, Bertel has been reporting that Japanese automakers are abandoning their homeland for lower-cost production centers overseas. Now, with economic turmoil shifting to Europe, it seems that Fiat could possibly be preparing for a pullback from Italy. Two basic factors are driving Fiat towards reconsidering its global manufacturing footprint: first, its struggles in the European market where margins are slim and dropping, second, its battles with Italian unions. Though Marchionne’s latest comments are ambiguous at best, some see these factors pushing the Italian automaker away from the market that gave it birth.

Bloomberg reports that Marchionne is calling Fiat’s 2012 profitability “uncertain,” as the CEO clarifies

More than volumes, the question is whether we can extract the same levels of margins. We are to some degree cautious on what is possible from Europe next year

Chrysler already contributes some 65% percent of Fiat’s overall profit. If the European market weakens, the Italian automaker could become even more dependent upon its American cousin. And if Europe’s economic uncertainty bleeds into the US market, Fiat could be in trouble. Credit Suisse analyst Erich Hauser notes that Fiat’s exposure to a weakened Europe could be a real cause for concern

The real concern is not so much the margin level in Europe next year, but the extent to which Fiat will consume cash in a downturn. If volumes fall further, then Fiat’s liquidity position could become an issue.

Marchionne’s response?

Globally we’ll be fine

And though that may be the case (depending on the US market’s performance), the problems inside Europe are mounting. And because Europe’s sovereign debt crisis is now centered on Italy, Marchionne’s scope for political maneuvering in that market may be compromised. That’s key because Fiat has been in a long confrontation with Italy’s labor unions. That conflict colored Marchionne’s recent optimism about Italy’s political future, as he noted recently on the departure of President Silvio Berlusconi:

Italy has a once-in-a lifetime opportunity to abandon the notion of an entitlement society. I think Italy is on the mend.

And Marchionne, a globally-known battler of union-led “entitlement societies,” is taking his fight to the Italian unions, as the WSJ [sub] reports that Fiat has canceled all of its agreements with Italy’s labor unions. According to the report

The latest decision amplifies special labor concessions made at some factories and applies them to all the productive plants in the country. It also comes as the new government vows to loosen Italy’s traditionally rigid employment laws.

And that move is stirring up political turmoil in the already-tumultuous Italian political system, prompting Antonio Di Pietro of the IDV to complain to AGI

By cancelling all trade-union agreements, FIAT is closing a circle, effectively announcing that the company is leaving Italy, using workers as the scapegoat. Employees are accused of being incapable of manufacturing innovative cars with a high added value and of selling them on the market

Legitimate fear or politically-motivated fearmongering? Only the future will tell whether Fiat can stick it out in Europe. But with its best production taking places in locations like Poland and Brazil, it’s going to be tough for Fiat to hack it out in Italy.