Fiat Auto chief executive Giancarlo Boschetti is confident his tough restructuring plan will return the company to profit within two years, after breaking even in 2003. The “back to basics” strategy will focus on improving product quality, raising sales and service quality at the dealer network - including rebalancing away from the unprofitable rental/contract hire business towards retail and top end fleet - and boosting residual values.

Dealers have a pivotal role to play in the company's resurgence and Fiat is investing around £290m in its European network. It has identified 50 key metropolitan areas, eight of which are in the UK, which represent 40 per cent of Fiat's sales volume.

“I am disappointed with the results of dealers in the UK and the level of sales they have achieved,” says Boschetti. “Quality of aftersales is not at a standard acceptable to the market. There is a lot to do in terms of dealer organisation.”

Boschetti is considering taking sales direct in some regions if the current set-up is not adequate and does not rule out replacing poor performing dealers. He wants clear differentiation between Fiat and Alfa Romeo showrooms, with separation of some dual premises, and says there is “terrific potential” to raise sales of cars and light commercials. A dedicated LCV organisation set up in Italy will be extended to the UK this year to help dealers boost sales.

The turnaround plan will leverage the alliance with GM to develop new products. Fiat believes synergies with GM will save the company £640m a year when fully operative. It intends to launch 20 models over the next three years which will share half their components with GM - the two companies already have a joint powertrain venture.

Longer-term, Fiat wants 90 per cent of its products to be developed with other manufacturers, also including Peugeot. There will be 2400 job losses in Italy due to plant reorganisation. No factories will be closed but the “painful adjustment” involves reducing assembly lines to address the issue of overcapacity and to achieve 90 per cent utilisation of manufacturing volume.

Boschetti believes these moves will prune product costs by five per cent, though privately he hopes to double this figure. A chief executive for quality has been appointed for each model line to boost quality standards. They have been tasked with reducing defects by a third on each vehicle compared to the present levels in a bid to lower warranty costs.

“We plan to reduce costs in all areas of the business. It won't be easy but we will accomplish this as we have done in the past,” says Boschetti.

Analysts, however, are less convinced. They say Fiat is faced with a difficult economic climate and has not got the same opportunities to reform the business as it had in the past. Nevertheless Boschetti remains bullish: “Other companies have turned around their businesses, so it is possible.”