An Italian government minister has explicitly linked the extension of Italian government incentives for the auto industry to increased production for Fiat.

The comments by Italy's Industry Minister Claudio Scajola could be seen as clumsy in the light of the increasing scrutiny of national state aid for auto companies by Brussels.

Scajola said that extending incentives for the auto industry should be linked to increased production by Fiat in Italy. He also said that Fiat CEO Sergio Marchionne told him on recent visit to Detroit that 'he agrees that the incentives problem cannot be separated from an increase of Fiat production in Italy'.

Observers note that any incentive in Italy that encourages the scrappage and replacement of small cars will naturally benefit Fiat in any case because of its high market share and small car segment specialism.

The remarks follow strong hints from Italian prime minister Silvio Berlusconi that the current scrappage incentive, due to expire at the end of the year, will be extended in some form.