Italy's once mighty car maker Fiat Auto has suffered another blow: a massive drop in domestic sales for October has raised fears over its vital recovery plan. However, the longer term picture is brighter than it appears on the surface. Sales to private buyers have risen substantially, and Fiat Group shareholders reacted positively to the results.

Fiat Auto has revealed that its volumes fell by a massive 21% during October in the all-important domestic market. Furthermore, the company's market share fell below the critical 30% barrier. Such disappointing headline figures do not appear to bode well for the company's turn around plan, and its aim for break-even in the final quarter of the year.

On closer scrutiny, however, the news may well not be as bad as it seems. The company has stated that the slump is the result of reduced sales to rental companies and of "dealer demo cars". It is well known in the industry that such sales carry little, if any, profit. In fact, manufacturers may actually make a loss on each car sold through such channels, although they do help protect market share.

More important is the fact that sales to private buyers, which generally carry the highest profit margins, rose substantially during the month according to Fiat. So despite the grim headline news, there are signs of a little relief for Fiat's long-suffering shareholders. In fact, the parent company's shares actually rose following the release of the results, based on the hope that the new commercial policy would begin to feed through to profitability.

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