Italy Autos Report Q3 2009

Italy’s loss of competitiveness in terms of high production costs will restrict any high production growth in the future, resulting in output of 846,900 annual units by end of 2013. Italy’s market appears to have gained some stability thanks to the EUR1.21bn (US$1.7bn) scrappage scheme announced by the government in February. As the report examines here, this has prompted the Italian Association of the Automotive Industry (Anfia) to revise its 2009 sales forecast from less than 2mn units (anticipated at the beginning of the year) to 2-2.1mn units.

This optimistic change follows the market performance in March and April when vehicle sales fell by 1% and 9% year-on-year (y-o-y) respectively, more stable than the 32.7% and 24.5% y-o-y declines seen in January and February. Although the market has positively reacted to the scrappage scheme, the report expects an overall annual 2.5% decline in private consumption growth while commercial spending in the overall economy is expected to fall by 7.0%. Furthermore, with a 3.9% contraction in annual economic growth expected, the report maintains its sales forecast of a 12% y-o-y drop in vehicle sales, down to 2.13mn units.

Thereafter, recovery in the market is expected to be slow; we expect pent-up demand for vehicle purchases to be met by mid-2010, and the saturated nature of the market will mean that sales growth will be limited to 1-2% annually by end-2013, when our current forecast period closes. Annual sales are expected to reach 2.25mn units by then.

Meanwhile production is likely to be limited by slow demand in the domestic market and falling export demand from its European markets. With exports declining by a staggering 45.5%, down to 86,233 units, in Q109, carmakers produced 38.6% fewer vehicles, down to 187,573 units, in the quarter compared with the period last year. As carmakers will be trying to avoid inventory accumulation, the report forecasts a fall in production from 1.02mn units in 2008 to close to 805,800 units this year. Italy’s loss of competitiveness in terms of high production costs will restrict any high production growth thereafter, resulting in output of 846,900 annual units by end-2013.

The government’s well-timed support and the presence of established domestic brands have helped the country to take fourth place in the Business Environment Ratings for the autos industry in Europe.

While dominating the domestic market, leading carmaker Fiat has taken a step closer towards entry into the US market. The carmaker formed a partnership with Chrysler in May, following the bankruptcy of the latter in April. It is believed that the alliance will not only give the Italian carmaker a ready access to the US operator’s sales network but also help it to strengthen its presence in the world’s largest autos market.