The Fiat Punto Series 2 was built at the factory under licence by Zastava (above) until last winter when the factory closed after the deal with Fiat to allow it to gear up for the arrival of two brand new models.

Fiat and the Serbian government have penned an agreement on the resumption of production of the last generation Punto in Kragujevac, Serbia, it has announced. The agreement was signed in Turin in the presence of Economy Minister Mlađan Dinkić, reports B92.

The Fiat Punto Series 2 was built at the plant under licence by Zastava until last winter when the factory closed after the takeover deal with Fiat to allow it to gear up for the arrival of two brand new models, a low cost B-segment car to replace the Palio, and an all-new small city car. However the severe global downturn in car sales has seen the plans put on hold and in the interim the previous generation Punto will resume production.

Under the deal signed late last week the Punto will be manufactured in Kragujevac not only for the domestic market, but for export too. The agreement also stipulates that production will begin in March and will reach a level of at least 15,000 cars a year, depending on market conditions.

A government delegation was in Turin for two days last week discussing business plans for 2009 with Fiat officials, as well as a date when production of the company’s new model could begin at Zastava. Dinkić, who was in Turin today with Fiat representatives, told B92 that the deal with Fiat had not been called into question, though new investments would come slowly because of the economic crisis.

“In March, work will begin alongside preparations for launching the new model, but those preparations will take a bit longer,” he said. “Investments will be slower than we originally planned, but we couldn’t have predicted that the economic crisis would reach these proportions when we signed the contract with the Italians, and neither could the Italians,” said Dinkić.

Zastava Independent Union President Zoran Mihajlović revealed that workers at the central Serbian plant hoped they would produce 20,000 cars a year, which would give jobs to about 1,000 of them. Mihajlović said that the contract signed yesterday, putting the figure at 15,000 cars, in effects means a continuation of a commercial contract Zastava already has with Fiat. "Unfortunately, information we have about the basic contract signed between the state and Fiat is very scant – [the contract] which envisaged a level of investment, and which envisaged that the Punto production be only an interim solution toward the manufacturing of a whole new model," he told B92.

"If there has been a postponement, and we hear there has been until about the end of the year, then it changes a lot of things in that protocol we signed with the government, and other things that surely must be put in the contract's annexes, in case that already occurred," this union leader added. The end-of-2008 postponement Mihajlović was referring was the investment that Fiat was to pump into Zastava.