Sergio’s show

At the Paris motor show this week, the hot topic around Sergio Marchionne was Volkswagen’s interest in acquiring Alfa Romeo. But the bigger question for the chief executive of Chrysler and Fiat, which owns the historic brand, is whether he will win his struggle with the unions to modernise practices in the Italian carmaker’s domestic factories.

Mr Marchionne deserves to prevail. He has pledged to invest €20bn in Italian factories and double car production by 2014, provided unions accept more flexible contracts and no-strike deals. Though some employees have accepted new agreements, take-up has been too low for managers to be sure of being able to make the changes smoothly.

In resisting Fiat’s attempts to change its members’ protected position, Fiom, the metalworkers’ union, appears oblivious to the weakness of its hand. Even before the financial crisis European carmakers suffered from overcapacity. This was made worse by the way some governments explicitly linked assistance over the past couple of years to keeping domestic plants open. The European car sector needs to shrink.

Against that background, Fiat has no choice but to cut costs – if not in Italy then by moving production elsewhere. It could shift to cheaper sites in Poland or Serbia, or further afield to Brazil where it is already the biggest auto group, and makes a profit. The prestige of being a symbol of Italy’s industrial might and its largest private sector employer comes at too high a price if Italian production continues to hold back the group.

The Italian unions’ intransigence contrasts with US experience. The risk of confusing the Union of Auto Workers with a bunch of softies is slight. Yet the UAW agreed not to strike before 2015 as part of the Fiat-Chrysler alliance forged last year. Without this deal, the US auto group could not have reported two quarters of operating profit this year. The union, sensibly, exercised power while it possessed clout, but behaved realistically after the Chapter 11 bankruptcy. Fiom could do with a similar dose of pragmatism.

Thirty years ago, Fiat employees and executives took to the Turin streets to protest against violent picketing. The marcia dei quarantamila was a turning point in Italian labour relations, as union influence declined through the 1980s. In the same way today, success for Mr Marchionne could – and should – embolden other Italian groups to take on a chronically uncompetitive working culture.