Three years ago Zastava renewed its long association with Fiat after still outstanding debts were renegotiated and it is now assembling the previous generation Fiat Punto at its Kragujevac factory under licence, badged as the Zastava 10.

A delegation from Fiat has arrived in Serbia to start talks about purchasing the state-owned Zastava car company, with the government Finance Minister claiming that the Italian firm is ready to pump in major investments.

The Serbian government had planned to auction the Zastava car company this month with a number of parties believed to have shown an interest, including Fiat, General Motors VW and Renault, with the German firm reported to be Fiat's biggest rival to acquire the Kragujevac based factory. However the impending general elections, called after the government fell in March, have seen the plan temporarily put back until May. Since the Balkan wars of the early 1990s the firm has struggled to attract investment and production remains far below pre-war levels.

Three years ago Zastava renewed its long association with Fiat after still outstanding debts were renegotiated and it is now assembling the previous generation Fiat Punto at its Kragujevac factory under licence, badged as the Zastava 10. However production is currently running at around just one third of the estimated 60,000 unit annual capacity. The firm is also preparing to introduce a GM model also.

Yesterday, as the delegation from Fiat arrived in the country, the outgoing Finance Minister, Mladjan Dinkic, claimed that the Italian firm is interested in completely bypassing the auction process, and is ready to make to make an impressive bid for Zastava that the government will be unable to turn down.

"Fiat in interested in the acquisition of Zastava," B92 and Reuters reported Dinkic saying yesterday, "according to how the talks turn out, we shall decide if and when an auction is to be held. The decision will be made at the end of this month. According to the talks they are ready to invest up to 300 million euros in the production facility in Serbia. It is a huge investment and if we negotiate a takeover the tender may not even be published."

The Fiat delegation, reported news agency B92, is headed by manufacturing chief Stefan Ketter includes representatives from all sectors, including the production and supply chains as well as research and development. It will meet with its Serbian counterparts today. "We will discuss the possibility for expanding the existing cooperation established three years ago, and one of the topics will be the possibility to assemble another model in this factory, in addition to Fiat Punto," Zastava director Zoran Bogdanović told B92 yesterday." Bogdanović was less committal about a complete sale to Fiat, but said "other aspects of cooperation will be reviewed."