To limit losses in Europe as its market share falls, Fiat aims to transform underused plants into export hubs for more expensive vehicles from Jeep, Alfa Romeo and Maserati.

Still, the carmaker’s plan faces obstacles including labor costs that are 14 percent higher than in the U.S. and the strenght of the euro, which is not good for exports. According to analysts at Deutsche Bank, Fiat may need to close at least two plants to fix its overcapacity problem. “It’s hard to see that an upmarket move will sufficiently support Fiat’s effort to close its capacity gap. Fiat should simultaneously reduce capacity,” Jochen Gehrke, an analyst at Deutsche Bank, was quoted as saying by Bloomberg.

Fiat uses the smallest share of its production capacity of any European carmaker and has suffered more than most of its rivals from the weakest European demand in 19 years. The carmaker hopes an expansion of high-end models can fill its factories and put an end to losses.

But analysts believe Fiat may need to halt production lines capable of making 700,000 vehicles a year in order to rebalance its operations. However, Fiat has a different idea, aiming to boost European production by 750,000 vehicles to 2 million in four years. According to Sergio Marchionne’s plan, upscale cars for customers in the U.S., Russia and China will represent 15 percent of that output.


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