Fiat Spa plans to spend as much as EUR9bn (US$12.3bn) on new models to end European losses in three years and revive nearly empty Italian factories, two sources have told a news agency.

In addition to bolstering the upscale Maserati and Alfa Romeo marques with new 'Made in Italy' models, the carmaker will focus the Fiat line on variants of the trendy 500 subcompact and the budget-oriented Panda small car, ditching a former best seller, the sources told Bloomberg News.

“It’s a brave and historic move to abandon your roots,” said Roberto Verganti, a management professor at Milan Polytechnic and the author of the 2009 book Design-Driven Innovation. “Going upscale with cool, high-margin 500 and Alfa models is the only possible strategy to continue building cars in Italy.”

With the timing of Fiat’s sought-after merger with Chrysler (CGC) Group LLC uncertain, Sergio Marchionne, who is chief executive officer of both carmakers, is under pressure to stem the Italian manufacturer’s losses in Europe. While Fiat has previously said it aims to develop about 20 new models for Europe by 2016, including eight Alfa Romeos, the company has declined to comment on a revised European strategy until April.

Punto axed

As part of the luxury focus for Italy, Fiat will introduce 500 and Jeep SUVs next year as well as a convertible version of the Alfa Romeo 4C sports car, said the sources. Those cars will all be made in its home country. The new Alfa Romeo Giulia sedan, designed mainly for export outside Europe, will be built in Italy by 2016, they said.

The Fiat Punto - long a brand staple - will be replaced by a five-door version of the 500. That mass-market model will be built in Poland to save costs and boost profit margins, the sources said. A Fiat representative declined to comment on the company’s European strategy.

The Punto, which was last restyled in 2005, accounted for 31% of the Fiat brand’s European sales in 2007, according to IHS Automotive.

Fiat has been losing market share in Europe for the past four years. The group’s deliveries in the region last year were 47% less than in 2009, according to ACEA. Fiat’s European market share has slumped to 6.2% this year from 9.3% in 2009.

The sales collapse has led to operating losses of almost EUR2bn since 2011, including EUR304m in the first nine months of this year.

“The only way to revive the industrial sector in Italy is moving to luxury production and glorifying the ‘Made in Italy’ concept,” said Giuseppe Berta, a professor at Bocconi University in Milan.

Fiat has furloughed many of its 30,700 production employees in Italy this year and most of those have been off work for more than five months this year. The goal is to bring them all back by focusing on luxury Alfa Romeo and Maserati vehicles. Under the plan, Mirafiori workers will start making the Maserati Levante, the elite brand’s first SUV, by 2015.

“Going upscale is the right choice and should be supported,” said Federico Bellono, head of the Fiom union in Turin. “Fiat should admit openly that it won’t re-hire all its workers in Italy.”

Fiat will share development with Chrysler to reduce the cost of the planned expansion and rely on the sales network of its American unit to help with distribution of the new vehicles.

“Fiat has seriously started to follow the right strategy for a country with no cheap labor but highly skilled workers,” said Mauro Ferrari, vice chairman of parts supplier Webasto.