Aug. 3–Some good news at last for Italian carmaker Fiat has brightened its immediate prospects but clouds on the horizon continue to threaten the company’s long-term future.

The beginning of the week did not augur well for Italy’s largest industrial group. Its stock price continued to tumble amid doubts about its relaunch strategy as a row with unions over job cuts was aggravated by a legal decision. A Milan court ordered the company to rehire around 1,000 workers after finding that a decision to close its plant at Arese, near Milan, broke an agreement with unions.

Fiat is confident an appeal will be successful. It says 900 workers at Arese were doing the same work 60 workers can manage in Turin and the plant is clearly not economically viable.

All the same, the decision looked like another blow to an already battered relaunch strategy which depends on getting costs and debts under control. By the end of the week though, Fiat was bathing in a warmer glow as its E1.8 billion ($2 billion, UKpound 1.3 billion) rights issue was successfully completed and better- than-expected second-quarter results prompted a revival in its stock market price.

The operating loss of the group fell to E25 million, compared to E127 million in the second quarter of 2002 and E342 million in the first quarter of this year. The auto-making division, Fiat Auto, reported an operating loss down from E394 million last year to E234 million this time.

Fiat net debts fell by E360 million to E4.8 billion. The group expects the disposal of its aviation unit Fiat Avio, which it has agreed to sell to Carlyle Group for E1.5 billion, will help cut the figure to E2.5 billion by the end of this year.

The improvement of the group’s debt is an important step as it looks to coax its reluctant partner, General Motors, back into an alliance which the two groups forged in 2000. The US carmaker has expressed doubts about the validity of a put option which would allow the Fiat group to sell it the 80 percent of the car manufacturing division which it does not already own in 2004. The debts it would be saddled with if it bought the rest of Fiat Auto are one of the reasons for GM’s reluctance.

More than 10 percent of Fiat’s stock was traded on Friday as its shares rose 5 percent. However, hedge funds which are thought to have taken a short position on Fiat were said to be partly behind the rise.

In the long term, survival in the cash-hungry carmaking business will depend more on Fiat finding a buyer or a backer than a good set of quarterly results. Otherwise the Italian government may be forced to step in to save one of the country’s biggest employers.

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