Sergio

Sergio Marchionne, chief executive officer of Fiat and Chrysler Group LLC, gestures during a conference on ''Freedom and Wellness'' in Parma, northern Italy, April 9, 2010.Paolo Bona

Fiat boss Sergio Marchionne is heading for a showdown with powerful industrial lobbies as he pushes for more flexible work practices that could lead to a broader shakeup of rules in the Italian car industry.

Marchionne fears that opposition by one of five unions at Fiat's underperforming plant at Pomigliano d'Arco near Naples could undermine a landmark productivity deal and has demanded an agreement before the end of September.

If no deal can be found, he has threatened to walk out of Confindustria, the employers lobby that has represented big business in Italy for the past 100 years, a move tantamount to pulling out of the system underpinning Italian labor relations.

Fiat is the number one industrial company in Italy and other companies would soon follow, said Giuliano Cazzola, vice president of the parliamentary labor committee.

A new company has already been created to run the Pomigliano plant that will be outside Confindustria and therefore not subject to the national contract rules that currently apply.

But losing Fiat itself would emasculate Confindustria, tear a hole in a system that has been praised for its stability in the economic crisis and could foster a profusion of local deals.

RELIABILITY

The charismatic Marchionne, a Canadian-Italian management star who has been instrumental in turning around both Fiat and the ailing U.S. giant Chrysler, has said the issue could decide Fiat's future in Italy.

For Fiat, it is key to restructure the Italian production base and make it efficient, otherwise should Marchionne leave, the whole recovery would collapse very soon, said Juergen Pieper, an analyst at Metzler Equities in Frankfurt.

To make Fiat really competitive, it is really important to get new working conditions since Italy is not a cheap place to produce cars and Fiat right now is too dependent on the energy and the motivation of its CEO.

Recent figures, which showed new car sales in Italy falling 19.2 percent in June, underline the challenge facing an industry that is being forced into a radical rethink of the way it works.

The only thing we have asked for is to have more reliability inside the factory, Marchionne wrote last month in an article in La Stampa, a Turin daily owned by Fiat.

Although four out of five trade unions and 62 percent of the 4,800 employees have approved the plan, which introduces a new Saturday night shift and limits the right to strike, FIOM-CGIL, Italy's main engineering sector union has refused to sign it.

FIOM-CGIL says the accord breaks national wages and conditions agreements and even the constitutional right to strike, raising fears of possible legal challenges.

Marchionne has bet 20 billion euros ($25.60 billion) on a plan to increase Fiat's output in Italy to 1.4 million vehicles from the current level of 650,000 by the end of 2014 but says his hands are tied by the system as it stands.

Productivity at Fiat plants in Italy sharply lags cheaper locations in eastern Europe and managers at Pomigliano have also had to contend with local problems including a rate of absenteeism that has reached as much as 30 percent at times.

NEW CONTRACT

Many analysts believe Marchionne's aim is a new labor contract for the car industry that would break away from the current deal which, with some narrowly defined exceptions, sets standard conditions for metal sector workers across Italy.

That contract imposes restrictions on working time rules, blocking full Saturday afternoon and evening shifts and limiting the extra number of working hours a company can impose.

The working time conditions under the metalworkers contract is a big handicap for Fiat, said Giorgio Santini, an official at the CISL union which has backed the Pomigliano accord.

The possibility of Fiat leaving Confindustria has caused alarm in both the business lobby and among unions and a deal may be found that would increase the scope for more precisely tailored sectoral deals within the current system.

I think they will get it and Fiat will stay in Confindustria, said former labor minister Tiziano Treu. Without wider exceptions to the national contract, the whole system would blow out.

One possibility is that Confindustria will meet unions in September to agree wider exceptions for the car sector.

The more moderate unions, such as the CISL and the UIL which supported the Pomigliano deal, are especially keen to reach an accord that will preserve the overall structure of the centralized national deals while allowing more flexibility.

They back looser restrictions but want any local deals to be subject to oversight and approval from national confederations, arguing that this would guard against abuses and exploitation while still allowing the flexibility demanded by Fiat.

But the harder line FIOM-CGIL group is expected to oppose any change to the old rules, leaving backers of the Pomigliano deal hoping to find a way to weaken its resistance or face a potentially lengthy struggle on the shop floor.

(Editing by Sitaraman Shankar)