The auto industry will continue to struggle because it has not cut its production capacity enough, Fiat chief Executive Sergio Marchionne told Reuters TV.

He said European sales would be lower next year if governments decided not to continue incentive schemes for new car buyers.

“Europe is going to have lower numbers next year unless there is an extension of incentives,” said Marchionne. Germany “is one market that’s going to drop substantially”, as incentives are withdrawn.

Marchionne also said the worst was over in the United States. “The US has seen the worst, it will have better numbers in 2010.” He added the country “will come out of the crisis in much better shape” but Europe would struggle because it had failed to cut capacity and companies reliant on the auto sector would suffer.

“A 5-10 percent demand drop (in Europe), given the operating leverage of suppliers, and a lot of people are going to bleed,” he said.

Overall, the global auto market was unlikely to reach sales levels seen in 2008 before 2012 to 2013, he added.

Car makers’ association ACEA said earlier sales in Europe were up 2.8% in July and 3% in August but off 8.2% in the first eight months.

 US sales were down almost 28% to the end of August, according to