Boston, MA -- (SBWIRE) -- 08/20/2012 -- Despite four consecutive years of contraction in the new vehicle sales market, new vehicle demand in Italy is showing no signs of recovery. According to estimates from the European automobile association ACEA new car sales declined by more than 20% on the first four months of 2012, while commercial vehicle demand fell almost 37% year-on-year (y-o-y) during the same period. On the back of this pessimism from both the households and the business sectors and in line with our forecast of a combined 1.4% contraction in Italian GDP during 2012, we have revised down our vehicle sales forecast from a 6% y-o-y decline expected last quarter to nearly 8% y-o-y, to 1.83mn units, in 2012. We see some recovery from 2013, but do not envisage a complete recovery in market demand any time during the forecast period.

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Meanwhile, there is muted optimism in the segment, thanks to improving signs of competitiveness in the Italian labour market over the last six months. The car-maker Fiat abandoned national collective bargaining on January 1 2012, while Mario Monti's government has agreed to plans making it easier for firms to fire employees and tackle the segmented labour market. While we think that these developments are steps in the right direction, more needs to be done for Italy to truly regain competitiveness. Without doubt, we see these developments posing upside risks to our cautious outlook for total vehicle production to reach 878,400 units in 2016, but we hold on to this forecast until Fiat unveils concrete production and investment plans for Italy.

The carmaker, on the other hand, has revealed it is looking to increase Maserati sales as much as 10- fold, to 50,000 cars a year by 2015, in a move which will not only see the luxury vehicle division playing a bigger role in the company's turnaround plan, but will also address some of the production-related issues in Italy. To a large extent, these expansions are aimed at tapping into growing global demand for luxury SUVs. In addition to the US, these vehicles are popular in key emerging markets such as China and Russia, where improved income levels have prompted vehicle owners to upgrade to luxury SUVs.

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