Staring at the locked gates of a Fiat car factory, Mimmo Vacchiano
says many families in this poor corner of southern Italy face a stark
choice unless its turnstiles reopen.

If they close this plant, there's nothing else here, only
unemployment or the mafia, said Vacchiano, a 48-year-old father of
two. Here, it's not like northern Italy, where you can find another
job. We're living in panic.

Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount
Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry
in the nearby port of Naples has closed, tightening the grip of the
ruthless Camorra crime gang on the economy of one of Europe's most
depressed regions.

Residents now fear they may pay the price for cash-strapped Fiat's
high-stakes strategy to survive the global recession by expanding to
become the world's second largest car maker.

Unemployment in Pomigliano already runs at nearly 20 percent and
Fiat's temporary closure of the plant -- in a bid to slash costs like
other major car makers -- has brought the town to its knees. Fiat
employs 5,000 people directly here but the plant provides jobs for
20,000 if suppliers are taken into account.

Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S.
auto maker Chrysler and wants to buy the international operations of
struggling General Motors, including Germany's Opel. This has raised
fears of job cuts in Italy, especially in Pomigliano and at Fiat's
Termini Imerese plant in Sicily.

Workers in Pomigliano, among the most militant in Italy, have
already clashed with police despite pledges from Fiat and the
government that the plant may be downsized but not closed.

Shutting this plant would cause a revolt, said Vacchiano, standing
with angry unionists who say Fiat has refused to talk to them. If they
buy Opel, they'll be doing it with money made off our backs!

Fiat CEO Sergio Marchionne has said he will only meet unions once he
has a clearer idea of the Opel deal. But with Fiat idling the plant for
weeks at a time, workers say monthly welfare payments of about 700
euros ($950) are not enough.

On the winding main street, some stores have shut down and in the
square men sit idly on park benches. Rubbish litters doorways and
washing dries on lines outside apartments where three generations of
families live.

In his office in the dilapidated municipal building, Mayor Antonio
Dellaratta says Prime Minister Silvio Berlusconi's center-right
government has a duty to step in.

This could bring the local economy to its knees. High unemployment
and insecurity would bring this town to collapse, he said. We're in
favor of this Opel merger but production must stay here. We must insist
on that because Fiat is Italian.


Founded in 1899 in the industrial town of Turin, Fiat quickly grew
to become the country's largest industrial group, transforming the
Agnelli family that controls it into the closest thing Italy now has to

Fiat has factories from Brazil to Poland, luxury brands such as
Maserati and Ferrari, and interests in insurance, technology,
advertising and publishing, including La Stampa newspaper.

But by the early years of this decade, the sprawling group had
become bureaucratic and loss-making. The 2004 appointment of Marchionne
as chief executive helped revive its fortunes.

He stripped away middle management while keeping good relations with
blue-collar unions, re-entered major foreign markets and launched
fuel-efficient small cars.

With the auto sector suffering its worst downturn in decades,
Marchionne believes only a handful of giants will survive. He launched
a deal-making spree to catapult Fiat's output over the 5 million cars a
year mark, which he says is key to profitability.

Some analysts say Fiat, facing 5 billion euros in debt payments this
year and already burning its way through its cash reserves, may have
bitten off more than it can chew.

There is that risk, said Adam Jonas, auto analyst with Morgan Stanley. But the risk of doing nothing is even greater.

With European car sales down by nearly one-fifth, Volvo has already
laid off staff, while Peugeot Citroen expects to post a 2009 loss and
even market leader Volkswagen has cut investment.

Jonas says Marchionne wants to make Fiat, which lost 48 million
euros in the first quarter, too big to fail so it can press
governments for aid and negotiate the terms on its debt.

Marchionne may be making promises he cannot keep but ... Fiat is
fighting just to survive the next two years, so it can then try to
survive the next five to 10, he said.


Berlusconi, a media tycoon whose approval ratings have so far
survived the downturn, has unveiled 1.7 billion euros of incentives to
stimulate the auto sector which accounts for 11 percent of gross
domestic product and 380,000 jobs.

Like others in Europe, his government has promised cash -- up to
1,500 euros -- for Italians to trade in their old cars for new, greener
models, but it said the scheme relied on a promise from Fiat not to
close any plants.

The maintenance of the five (Fiat) plants in Italy is non
negotiable, Industry Minister Claudio Scajola told journalists on
Tuesday, asked about possible factory closures.

Already laboring under the euro zone's heaviest debt and rebuilding
after an earthquake in April, Italy's government may have limited scope
to prop up the sector. But Fiat thinks it will need billions to make
the GM deal work.

Facing competition from Austrian-Canadian parts maker Magna for
Opel, Fiat makes public its proposal for the operation this week.
Germany's government, which faces elections in September, is also
pressing hard to avoid plant closures.

Part of the problem for Pomigliano is that fuel-efficient models
which have driven Fiat's recovery -- earning praise from U.S. President
Barack Obama -- are mainly produced overseas.

Pomigliano makes luxury Alfa Romeo models like the sporty GT and
aging 147, now in its eighth year of production. Sicily's Termini
Imerese plant makes Lancias, which a German trade paper said risked
being dropped in favor of Opel.

A draft of Fiat's Project Phoenix for the deal shows Pomigliano
being downsized and Termini Imerese assigned another purpose outside
car production within the Fiat group. But local politicians say Fiat
has an obligation to the struggling region.

We want Fiat to unveil a plan to escape this crisis, to make
ecological cars here, said Dellaratta in Pomigliano. The government
must give south Italy the infrastructure, technology and research
facilities to compete with the north and Europe.

Once home to steel mills and refineries, a steady industrial decline
in the Naples' area since the 1980s has left a legacy of environmental
contamination, which has ruined agriculture and caused rising rates of
leukemia and tumors, local doctors say.

Unemployment provides foot-soldiers for the Camorra, one of Italy's
most brutal crime networks with interests from textiles to waste
disposal and drug trafficking. With a huge black market economy, half
the population of the south is outside the labor market and not even
looking for a regular job, data show.

Meanwhile, the official unemployment rate in the south runs at three
times the north's rate, at over 12 percent, making a regular job a
dream for many young Italians here.

How can I get a job? Here, in the south, you have to know someone
or pay a union leader just to get work, said Giuseppe Bracolino, 24,
sat in the square. Opportunities here? Zero.