Fiat in deal with Zastava to build low-cost cars in Serbia

Fiat will build a mini-class car and other low-cost cars at the Zastava factory in Serbia after the Italian company signed a memorandum of understanding with the Belgrade authorities to take over the plant and establish a new joint company with a majority stake for Fiat, Automotive News reports.

Starting 2010, the factory will become a production center in Central and Eastern Europe for a new family of Fiat low cost cars included in the „B compact” program.

Fiat announced the new company would invest 700 million euro in modernizing the Kragujevac-based Zastava plant. Serbian authorities will contribute 200 million euro consisting in tax exemptions and state assistance.

Fiat may reach a production capacity of 200,000 units yearly in Serbia by the end of 2009. The first new model to be produced there will be a mini car nicknamed Topolino, after the name of the famous car launched by Fiat in 1936, according to Automotive News.