Fiat's Possible Plant Closure Threatens Car Scrappage Scheme Renewal

by Ulrika Lomas, Tax-News.com, Brussels

27 November 2009

The possible renewal of the Italian car scrappage scheme, to provide further incentives to purchase new vehicles next year, has become intertwined with the proposed closure by Fiat, the Italian vehicle manufacturer, of its factory at Termini Imerese in Sicily.

Italy’s Minister for Economic Development, Claudio Scajola, has said that it would be folly to close an industrial centre where significant recent investments have already been made. While Fiat has maintained that its six car factories in Italy were too many, and that production costs at Termini Imerese are too high, the Minister replied that the government would, instead, require Fiat to increase its vehicle production in Italy.

The Minister agreed that the car manufacturing sector in Italy needs significant restructuring. However, he felt that that it did not mean that a situation could persist where Italy produces less cars than it registers annually and where, for example, Spain produces twice as many cars as Italy. It was pointed out that Fiat itself has an annual production of less than 600,000 cars in a domestic market of 2m.

A meeting has been fixed for the beginning of December between Fiat and the government to discuss the whole situation. In the meantime, there has been further pressure, particularly from the trade unions, to link any consideration of a renewal of Italy’s car scrappage scheme to Fiat’s maintenance of all its productive capacity in the country, including Termini Imerese.

The current eco-incentive scrappage scheme, which ends on December 31, 2009, gives EUR1,500 (USD2,250) to those who purchase a new low-emission petrol or diesel car, after scrapping an old vehicle produced before December 31, 1999.

In any case, the Minister underlined that incentives for the auto sector were likely to be less next year, as part of a gradual reduction so as not to distort the market.

However, he added, Italy would have to move in line with the rest of the European Union (EU). If, in the EU, it is felt that the car industry is out of recession, then the incentives would have to stop. On the other hand, if it is decided to continue incentives in the rest of the EU, then Italy would also have to continue, or risk damaging its market.

Surprisingly, his final comment was to introduce the possibility of the government providing future incentives to other sectors in recession, such as furniture or household appliances.

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