Fiat is meeting with the Italian government today with an offer to increase car production in the country by 50% in return for tax breaks on some car sales and help in cutting labour costs.

CEO Sergio Marchionne said that producing 900,000 cars a year in Italy was "not astronomical" although the company will make around 600,000 vehicles domestically this year, down from around 800,000 before the global financial downturn began.

Marchionne was meeting industry minister Claudio Scajola and a representative from prime minister Silvio Berlusconi's office. This is seen as the opening of discussions and no agreement is expected at this stage.

Tax incentives introduced by the Italian government earlier this year are due to expire at the end of this month although Scajola has said these could be extended in some form.

Foreign car makers' association UNRAE says the government is focused on tax breaks for natural gas powered cars, mostly sold by Fiat. It adds that without any incentives, car sales in Italy could fall to 1.8m units in 2010. Incentives on natural gas cars could add 80,000 to that figure.

Sales in Italy are expected to be about 2.1m vehicles this year. In the first 11 months of 2009, Fiat brands had a 32.88% share of the domestic market followed by Ford with 9.8%.

Fiat, which took a 20% stake in Chrysler earlier this year, is already considering moving some Panda production from its overstretched plant in Poland to help boost output in Italy. It is also increasingly likely that it will shut its expensive Termini Imerese plant by 2011.

There have been reports of interest in the Sicily-based factory from vehicle makers in China and India although they are likely to encounter the same logistical problems as Fiat.

Marchionne is keen to increase productivity at Fiat's Italian plants. He said last month: "We have six sites in Italy which produced the equivalent of one factory in Brazil. What kind of industrial logic is that?"

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