MILAN (Bloomberg) -- Fiat CEO Sergio Marchionne got a show of support from Italian Prime Minister Mario Monti for the carmaker's latest effort to shore up domestic operations. The political cameo in southern Italy will do little to overcome the plan's challenges.
To stem mounting losses in Europe as its market share dwindles, Fiat intends to transform underused factories into export hubs for more expensive vehicles from Jeep, Alfa Romeo and Maserati.
The initiative faces hurdles including labor costs that are 14 percent higher than in the U.S. and the strength of the euro, which has gained 4 percent against the dollar in the last six months.
Analysts at Deutsche Bank say the plan may not be enough to fix Fiat's production overhang, which could require closing at least two plants. "It's hard to see that an upmarket move will sufficiently support" Fiat's effort to close its capacity gap, said Jochen Gehrke, an analyst at Deutsche Bank in Frankfurt. "Fiat should simultaneously reduce capacity."
Fiat, which uses the smallest share of its production capacity of any European carmaker, says an expansion of high-end models can fill factories and stop it running through what Barclays estimates to be 260 million euros ($345 million) of cash a month.