Fiat, Serbia Join To Revive Auto Plant

Serbia's government signed a joint venture Monday with Italian car maker Fiat to revive the country's only car plant, Zastava.

BELGRADE, Serbia (AP) -- Serbia's government signed a euro940 million (US$1,376 million) deal Monday with Italian car maker Fiat to revive the country's only car plant, Zastava.

Serbian officials said the joint venture will transform Zastava from a money loser into a profitable exporter that will employ 4,700 workers.

"This investment is the biggest so far in Serbia," said government minister Mladjan Dinkic, who signed the agreement with Fiat's CEO, Sergio Marchionne.

Marchionne said the deal demonstrated the company's confidence and trust in Serbia.

Zastava briefly exported its boxy Yugo cars to the United States in the 1980s, but with little success.

Serbia is a Balkan country that was led into economic crisis and international isolation by the militaristic policies of nationalist leader Slobodan Milosevic. Milosevic fell from power in 200, and Western investment in the country has grown since then.

Fiat and Serbia first signed a memorandum of understanding in April.

They announced Monday that the deal envisages formation of a joint company in which Fiat will have a controlling stake of 67 percent and Serbia will own 33 percent.

Fiat will invest euro700 million ($1.02 billion) in the factory in the coming months, hoping produce 200,000 cars over the next several years, officials said. Production of a new model will start in 2010, the two sides announced.

Dinkic said his government will invest euro300,000 ($439,000) in roads, rail, the power system other infrastructure in the central town of Kragujevac, where Zastava is located. The government will also exempt Fiat from paying taxes and create a tax-free zone in Kragujevac, Dinkic said.

The plant has steadily deteriorated since the start of the wars in the former Yugoslavia, producing less and becoming an economic loser supported by the state.

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