The Italian automotive market has been in decline for some years with passenger vehicle sales down to 1.6 million units in 2015 from 2.2 million units a decade earlier.

However, things are now looking up and Italy’s auto sector is slowly getting back into a growth trajectory. In the third quarter of calendar 2016, the market continued its run towards full recovery but at a slower pace compared to the first half of the year.

While the deployment of Alfa Romeo’s Giulia in all its configurations is taking place right after the Paris Motor Show, a prototype of the new Stelvio has been spotted on the Cassino assembly line. The US market launch of these models will, therefore, be critical for this iconic brand.

The Italian new car market continues to do well and has exceeded expectations tabled in the beginning of this year. Sales from January to September sales totalled 1.4 million units, up 16.9 per cent over the same period last year and slightly more than Q1-Q3 2011(1.37 million units).

Even if the peak of 2007 will be difficult to emulate, the current market still has potential even if it is 27.4 per cent down from those record levels. In Q3 2016, new passenger car registrations have grown to 361,468 units, 12.2 per cent higher than the same period in 2015.

This increase may pale in contrast to what was seen in Q1 (20.5 per cent) and Q2(16.9 per cent) but this was largely due to the limited growth recorded in July. It was the only month in 2016 which saw a single digit increase (against 2015) at 3.2 per cent to 135,275 units. However, the market soared in August and September recording growth of 20.9 per cent (to 71,576 units) and 17.4 per cent (to 153,617 units) which made up for a lacklustre July. The economic sentiment indicator (ESI) throughout Q3 of this calendar suggests a slowdown in sales for the next quarter.

The ESI actually recovered slightly in July (105.2 points) from the dip marked in June (104.8) but is still lower than the level in May (108.4). It touched the lowest point in August (103.1), followed by a weak rise in September (103.5).

In Q3 2016, purchases by private consumers accounted for 63 per cent (228,000 units) of the total market, down 5.5 per cent from Q3 2015 but still higher in absolute terms (3.3 per cent QOQ). On the other side, the market share of rental companies and businesses increased in the same period to 15.9 per cent and 21.1 per cent respectively.

Despite the diesel emissions scandal, consumers did not reduce their appetite for diesel engines which gained further market share in Q3 2016 as against 2015, rising to 58 per cent (210,000 units), from 54.1 per cent.

Petrol engines, on the other hand, shrunk to 30 per cent along with CNG and LPG. Even if most buyers preferred combustion engines, the number of drivers buying cleaner cars (hybrids and electrics) is growing. In Q3 2016, they accounted for 2.3 per cent of the total new car market (registrations up 50.6 per cent from 2015) against 1.7 per cent in the preceding year.

A and B segment vehicles still represent the largest slice of the market: in Q3 2016, both segments made up more than 40 per cent but lost 3.6 per cent (from 46.7 per cent) in the same quarter last year. On the contrary, the SUV segment continues to grow with registrations up 25 per cent to 98,500 units in the period with market share up 2.8 per cent to 27.1 per cent.

The Italian market posted growth throughout the year which probably surpassed most optimistic expectations. Even though GDP growth is predicted to be weak this calendar, the automotive industry continues to buck the trend for two reasons.

One, the car market’s collapse following the financial crisis of 2008 led to a halving of sale volumes in 2013compared to 2007 levels. As a consequence, the car parc has become aged and increasingly outdated.

Two, aggressive commercial campaigns offered by both dealers and manufacturers have propped up the market. If the pent up demand generated is absorbed during the years to come, doubts remain on the sustainability of rebates in the short to medium term.

Keeping this in mind, PwC Autofacts forecasts sales in Q4 2016 to keep pace with Q3 which translates into growth of 13.8 per cent from the preceding year. This will push sales up to 1.83 million vehicles, marking an increase in relative terms of 16.2 per cent year-on-year.

From India’s point of view, the biggest connect with Italy is Fiat whose association goes back to the 1950s. When the company decided to move in aggressively post-reforms in the ‘90s, a lot was expected. However, it has been a rollercoaster ride for many years now with products like the Uno and Palio promising the moon but ending up falling by the wayside.

Fiat has since merged with Chrysler and the combined entity (Fiat Chrysler Automobiles) is now betting big on Jeep as a brand to keep the India story going. As in the case of Italy, SUVs are on a roll here and it will be interesting to see how Jeep reaches out to customers here and gets Fiat Chrysler back on track.

The writer is Partner, Price Waterhouse

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