BELGRADE – Italy’s Fiat is teaming up with Serbia to invest a combined 700 million euros ($1.09 billion) to produce two new car models in local carmaker Zastava’s plant in the town of Kragujevac. Serbian officials said Fiat would own 70 percent of the joint venture. «Fiat plans to start production of one new model by the end of next year, and of a second model by the end of 2010,» Serbian Economy Minister Mladjan Dinkic said after the signing. «Fiat will increase production to reach 300,000 cars a year by end-2010,» he said, adding there was a possibility of the deal also including the manufacturing of car parts. Below capacity Zastava’s annual production is now around 15,000 cars, well below its capacity of 60,000. The plant, home of the Yugo car, was hit by NATO air strikes on Serbian industrial sites in 1999, and reconstruction has been slow. A Fiat spokesman told Reuters the two new models would be under the Fiat brand. Under a separate deal with Fiat, Zastava assembles Punto cars and sells them in Serbia and the Balkans under the Zastava 10 brand. A statement by Fiat said the firm and Belgrade would now «examine the various aspects of the initiative in greater detail» and, if deemed feasible, «will enter into a definitive agreement in the course of the coming months.» Zastava currently employs 4,000 workers, down from more than 11,000 before restructuring in 2001. It also has a deal with General Motors for local production of Astras, with the first cars expected to roll out later this year. Change of plan Serbia’s government was initially set to launch a tender for Zastava in April, but its plans changed when the government collapsed in March and an early election was called for May. Officials said the deal received a boost when Serbia signed a pre-accession pact with the European Union on Tuesday. Once implemented, it will lead to improved trade ties with the bloc. In parallel to the deal with Fiat, Belgrade has said it is pursuing cooperation in the auto sector with other foreign firms, including Volkswagen and China’s FAW Car.