Italian Prime Minister Silvio Berlusconi has raised the possibility of a new government funded scrapping incentive or tax breaks to support the falling Italian car market and help Fiat. Scrapping incentives act as a de facto government funded price cut and are usually based on redeemable vouchers upon the trading in of cars over a certain age. In the past they have successfully boosted depressed markets in a number of European countries including France, Italy and Denmark.
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In 1997 a scrapping scheme in Italy kick-started the car market to 2.4 million units from 1.7 million units the year before.
The advantage of such an incentive in the Italian market is that it probably would not fall foul of EU rules on state aid, as it applies to all carmakers. However, Fiat’s 25% share of the Italian car market would make it by far the biggest beneficiary and support flagging output and capacity utilisation in Fiat’s factories.
Berlusconi, speaking on a TV talk show ‘Porta a Porta’, claimed that the whole industry would benefit from a scrapping scheme, not just Fiat, and that trading in old cars for new models that run more efficiently benefits the environment.
Critics of scrapping schemes say that the short-term volume gain that they bring needs to be weighed against the fact that they mainly act to bring forward purchases and that sales take a hit in the future. Past experience also suggests that they result in lower margins and intensified competition in the industry.
The Italian car market is in decline this year after a period of heavy discounting and the decline is compounding Fiat’s current problems, which include rising financial losses and low production capacity utilisation. The company has already set out plans to cut 3,000 jobs in Italy and labour unions plan a two hour strike next Friday to protest.
