MILAN, Italy—Fiat chief executive Sergio Marchionne has announced a $1.32-billion investment to produce two SUVs at a plant in southern Italy.

In a sign of the importance of the investment, Premier Mario Monti joined Marchionne at the Melfi plant in Basilicata for the announcement.

Marchionne said the plan to build a pair of SUVs—one under the Jeep brand, the other a Fiat—would help the automaker staunch losses in Europe and address the under-utilization of its Italian plants due to the fall-off in demand caused by the economic crisis.

Marchionne, who also runs U.S. carmaker Chrysler, said the Melfi factory would be modernized to reach a daily capacity of 1,600 vehicles.

Monti welcomed the investment as a sign of trust in Italys future.