Italy to make Jeeps in billion-euro Chrysler deal

The deal unveiled in a Fiat statement follows an announcement earlier this year that the tiny Fiat 500 -- an iconic Italian car brand -- is to go on sale in the United States starting in 2011 and will be partly produced in the US.

Fiat said the deal would bring investments of more than 1.0 billion euros ($1.3 billion ) to the Mirafiori plant in Turin, which was inaugurated in 1939 and is Fiat's biggest production facility with more than 12,000 employees.

"This is an important day," Sergio Marchionne, the chief executive of both Fiat and Chrysler, said at a meeting with trade union leaders in Turin.

"Italy and the United States ... have something in common. The ability to reach incredible targets if there is a common will," he added.

"I think that Turin and Mirafiori are the perfect place to launch a journey like this. This is a place where the culture of action is solid."

Production is set to start in the third or fourth quarter of 2012.

"The plan foresees the creation of a joint enterprise between Chrysler and Fiat to bring to Turin a new platform from the United States to produce cars and SUVs for the Jeep and Alfa Romeo brands," Fiat said in the statement.

"The investment is more than one billion euros, divided between Fiat and Chrysler in proportion depending on the quantity of their respective brands," Fiat said, adding that up to 280,000 models a year would be produced.

Fiat took operational control of Chrysler, which owns the Jeep brand, last year following the US company's exit from bankruptcy proceedings.

Fiat currently owns 20 per cent of Chrysler's and is set to increase its stake to 35 per cent by the end of next year. It also has an option to buy a majority stake once US Treasury loans to Chrysler have been repaid.

Fiat earlier this year said it would open dealerships in 165 locations across the United States with the biggest small-car markets.

The Fiat 500 will be built in Toluca, Mexico, while its engine will be manufactured in the United States, Chrysler said.

Following a series of clashes with Italian trade unions over labour conditions and salaries, Fiat said the Mirafiori plant investment would be on condition that unions increase productivity and competitiveness at the plant.

Fiat earlier this year said it would invest 20 billion euros in Italy by 2014 in order to double production but has called for a reform of contracts with trade unions, who have held a series of protests against management.

The company has been badly hit by the global economic crisis.

Sales of Fiat cars plunged by nearly 40 per cent in October compared to the same month last year.

Marchionne caused ripples last month for criticising Fiat plants in Italy.

"Fiat cannot continue operating these factories at a loss forever," he said, adding: "Fiat would be better off if it eliminated Italy. Italy ranks 118th out of 139 countries in work efficiency and is 48th in industrial competitiveness.

"For a long time now, the Italian system has been losing its competitiveness year-by-year, and over the last 10 years it has not kept pace with other countries, but this is not the fault of the workers," he added.

He pointed out that Fiat's 6,100 workers in Poland produce the same number of cars put out by the 22,000 workers of the company's auto division in Italy.