The Fiat Punto MkII, which was being built in limited numbers under licence by Zastava before the Fiat takeover, will be pressed back into production but now badged as a Fiat once more.

The Serbian privatisation agency says that the 200 million euros that Fiat owes for the purchase of the Zastava factory will be paid by the end of the year and that large scale production plans are still in the pipeline.

Ambitious plans by Fiat to buy the former Zastava factory, which once built Yugo models, located in the town of Kragujevac and to turn it into a key production hub for two of its planned new models (a low-cost B-segment replacement for the long-running Palio hatchback and an all-new small city car to fit under the Panda) have gone on hold as the global economic slowdown has seen new car sales across Europe slump.

Instead the Fiat Punto MkII, which was being built in limited numbers under licence by Zastava before the Fiat takeover, will be pressed back into production but will now badged as a Fiat once more. The initial production rate will be around 15,000 units per year. Fiat has been very quiet recently on the plans to bring in new models, although Serbian government sources have been optimistically talking up 2010 as a date.

Though the contract between Fiat and the Serbian government (which owns Zastava) stipulates that the Serbian government can fine Fiat 30 million euros in the event of failure to pay the agreed figure, Privatisation Agency adviser Aleksandar Ljubić told Serbian news agency B92 this week that the clause should not be resorted to as the goal is for Zastava to become part of a big manufacturer like Fiat. "The 1,000 people that will be employed for the production of the Punto will work for the company, for Fiat Automobiles Serbia, because the vehicles coming off the production lines will be under the Fiat brand," he explained. "As I said, there’s a lot of work ahead of us. All the other workers in the factory will be engaged on the other projects envisioned by the contract. Primarily, equipment transfer, preparations for the establishment of the new logistical set-up within the factory, and preparing the infrastructure for the arrival of the new equipment," said Ljubić. B92 added that Zastava Union representatives have met this week with Economy Minister Mlađan Dinkić.