UPDATE 1-Fiat confirms Italy plants will produce U.S. cars
* Fiat CEO says Italy, Europe no longer sole end markets
* Seeks to rally staff in Italy
* Mum on models, volume, time frame
By Silvia Aloisi
MILAN, Sept 25 (Reuters) - Fiat's chief executive confirmed on Tuesday plans to have its Italian factories make cars that will be sold outside Europe, particularly in the United States, as the company looks to counter a five-year market slump in Europe.
Sergio Marchionne told staff in Italy that Italy and Europe could no longer be considered the only end markets for Fiat, which also runs Chrysler in the United States.
"We can and we must think of the car sector in Italy in a different way, refocus it ... so that it becomes an important production centre for exports outside Europe. In our case, that means above all the United States," he said.
Fiat had already said after a meeting over the weekend between Marchionne and Prime Minister Mario Monti that it would start making cars at its idled Italian factories for sale outside Europe.
A source close to the situation said that meant producing cars, probably Jeep and Chrysler models, for the United States, where the market is growing and Chrysler plants are running at full capacity.
Fiat, which has been managing Chrysler since a 2009 bailout agreement with the U.S. government, has 61.8 percent of the U.S. group.
In the past three years, Chrysler's turnaround has made it the biggest income generator for the combined group, contributing more than two-thirds of total profits.
Fiat expects to lose 700 million euros in Europe this year, and Marchionne is under pressure in Italy to explain how it can keep its factories there open when car sales have plunged to their lowest level in 40 years.
Europe is in the throes of a debt crisis that has taken a toll on a number of industries, including autos.
Fiat has effectively abandoned plans to pour 16 billion euros (US$20.6 billion) into its Italian factories, putting investments on hold until it sees signs of a market rebound.
Unions and analysts have said that it was difficult to see how Marchionne could make those plants, currently running at around 50 percent capacity, produce cars for the U.S. market if he keeps delaying investments.
No details about models, production volume or the time frame for the export plan have been provided by the company.
"We will ask (Marchionne) to get started with the new models, that's the choice that Fiat has to make," Luigi Angeletti, leader of the UIL union, told Italian radio on Tuesday before a meeting between labour groups and the Rome government.
Marchionne is asking the Italian government to help the manufacturing sector become more competitive. Industry Minister Corrado Passera said on Monday that the government was considering tax or other incentives to help exports.
In his speech, meant to rally staff in Italy behind him, Marchionne said he was aware that his frequent trips to the United States might have created fear among Fiat's 20,000 Italian employees that they were being "abandoned".
He said his commitment towards Fiat was unchanged, and he told local staff to ignore critics who have accused the company of gradually disengaging from its home country.
He also repeated calls for the European Commission to guarantee a level playing field and attacked German carmakers for "creating conditions that are more favourable to their own industry."
Marchionne has accused German rival Volkswagen of contributing to a "bloodbath" among carmakers by waging a price war in Europe and ramping up production at a time when the continent faces huge overcapacity.
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