Fiat burns a skidmark in the sand for Italian industry

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Italy's industrial base is shrinking with alarming speed, thanks to high costs and fierce competition from Germany and just about everywhere in Asia. If Sergio Marchionne gets his way, the pace of deindustrialization will slow a bit.

Mr. Marchionne is the Italian-Canadian CEO of both Fiat and Chrysler. Having saved Chrysler from almost certain extinction, our boy is now back in Italy trying to shore up Fiat. Fiat makes money, to be sure. It's just that all of its profits come from its non-Italian factories.

Mr. Marchionne wants to change that. He has offered to invest fortunes in Italy to ramp up production as long as the country's unions cut a new deal. He wants greater efficiency in the form of more flexible work rules, longer working weeks, fewer perks and an end to the notorious absenteeism that cripples some plants. It doesn't appear he's getting what he wants.

Says who? Says Mr. Marchionne himself, who used Italy's state broadcaster, RAI, to denounce Fiat's Italian car plants. He recently raised Fiat's trading profit forecast for 2010 to €2-billion. But of that amount "not one euro…comes from Italy," he said in the interview.

"We still have a loss [in Italy]" he said. "If we were to eliminate that Italian side from our results, Fiat would do more."

To be fair, not all of Italy's plants are as limp as day-old linguini. The Northern plants are fairly competitive, not so the southern ones. A factory in Sicily, that makes the Lancia brand, is about to close. The larger Pomigliano plant, near Naples, could close unless the unions agree to Fiat's plan. Pomigliano's 5,000 workers produced a mere 35,000 cars last year, an average of seven cars per employee, making it one of the most inefficient car factories in the world.

Mr. Marchionne's outburst appears to be directed largely at Pomigliano, where the powerful Fiom metalworkers union is resisting Fiat's effort to boost production in exchange for a union deal. While Fiat is on record saying it wants to keep Pomigliano going, there is little doubt Mr. Marchionne would reverse the pledge in an instant unless he gets his way. If Pomigliano were to close, one of the beneficiaries would be Fiat's highly successful Polish plant, which already makes as many cars as any five of Fiat's Italian factories.

Sadly, Italian competitiveness is waning all over the industrial base, not just in the auto sector. Costs are too high, productivity is too low. As a result, Italy, Europe's second-biggest manufacturer after Germany, risks scorching its industrial base, as Britain did in the 1970s and 1980s, when Japanese competition came on strong. Britain ended up outsourcing much of its manufacturing to lower-cost countries and doesn't know how to get it back. Italy is doing the same, a scenario that virtually guarantees years of tepid growth, or worse.

Mr. Marchionne's warnings were directed at Fiat's Italian workers. But they could equally apply to all of the country's heavy industries.