Italy's new car market could sink 16% to 1.8m vehicles next year if Rome scraps trade-in incentives, foreign car makers' association Unrae has said.

Unrae said in a statement cited by Reuters that, if incentives were extended by the government beyond the 31 December 2009 deadline and to include also trading in newer Euro 2 emission standard vehicles, the market could remain relatively steady at 2.1m vehicles.

Italy's government has said current incentives are likely to be extended in some form past the end of the year but have put pressure on the major domestic car maker Fiat to increase output in Italy to over 900,000 cars a year in return.

Fiat's chief executive, Sergio Marchionne, will meet the Italian government on 22 December to outline the Italian company's strategy before presenting it publicly some time in the first quarter.

Fiat is expected to produce about 600,000 vehicles in Italy this year, down from around 800,000 before the global financial crisis and credit crunch hit demand. It is the only major car maker in Italy and has over 30% of the domestic market.

Marchionne has said 900,000 vehicles a year is "not astronomical," Reuters noted, while chairman Luca Montezemolo told the news agency on Monday the company would be able to significantly increase output.

Marchionne would like to see incentives phased out gradually over two years, which Unrae supported, calling for a "soft exit."

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