April 4 (Bloomberg) -- The bottom was already falling out of the Italian auto market. Then the political turmoil hit.
After an inconclusive election more than five weeks ago sent weak demand spiraling further downward, sales in 2013 could drop as much as 21 percent to 1.11 million cars, the lowest since 1966, said Gian Primo Quagliano, head of automotive researcher CSP in Bologna.
The plummeting deliveries are upending Italy’s auto industry and will hit Turin-based Fiat SpA especially hard. Hundreds of dealerships are closing and factories are running at half capacity. To offset the woe in Italy, which accounts for 56 percent of its European deliveries, Fiat is seeking to boost sales in Germany by offering steeper discounts than any other automaker there.
Now, even German demand is weakening: Results released yesterday showed that, in March, deliveries tumbled 17 percent, the biggest monthly drop since October 2010, limiting options for Fiat and other European carmakers to offset declines elsewhere.
Italy’s lack of political leadership is “a fundamental and serious problem,” Fiat Chief Executive Officer Sergio Marchionne said last month. “Every period of instability, in managing a country or a company, creates doubts and weakness among consumers.”
Consumer confidence in Italy fell in March after the February election failed to produce a clear majority for a new government as the country faces its fourth recession since 2001. Auto sales dropped 13 percent through March to almost 355,000 vehicles, with Fiat deliveries down 9.3 percent, according to industry group Anfia, which estimates a demand drop of as much as 10 percent this year.
A deepening slump in Italy will make it more difficult for Marchionne to reach a 2016 target of reaching the break-even level in Europe, where the automaker lost more than 700 million euros ($898 million) last year.
Fiat had a sign of hope last month, as demand for the new 500L wagon helped sales in the country rise 5.3 percent. Still, the gain was off depressed levels from March 2012, when the country suffered from a truckers’ strike.
Italy’s woes have left their mark on Fiat’s market value, which has withered to 5.1 billion euros from more than 22 billion euros before the start of the financial crunch in 2007. Volkswagen AG, aided by a more stable German market and expansion in the U.S. and China, has climbed in value to 70.4 billion euros from 56 billion euros over the same period.
Fiat shares, which have fallen 8.5 percent over the past six months the worst performer in the Euro Stoxx autos and parts index, were up 1 cent at 4.07 euros at 2:15 p.m. in Milan.
Fiat, which controls Chrysler Group LLC, is relying on the American carmaker to sustain earnings as Italy unravels. Chrysler sales in U.S. rose 5 percent in March for its 36th consecutive monthly gain. To stem losses in Europe, Marchionne plans to transform underused factories in Italy into export hubs for more-expensive vehicles from the group’s Jeep, Alfa Romeo and Maserati brands.
A decline to 1.11 million cars this year, which would represent a 55 percent drop from 2007, “would be a horrible outcome and may cause major disruption in the sector, which represents about 12 percent of Italian gross domestic product,” said Quagliano, describing the forecast as a worst-case scenario.
Italy’s political impasse extended into a second month as a 10-person committee named by President Giorgio Napolitano started work on building consensus toward a new government before his term expires in six weeks. The country won’t likely have a new government in place before the next president is elected. A recovery of the car market is only expected once a new government succeeds in reducing taxes and boosting consumption, according to auto group Anfia.
The last time Italy’s car sales were this low was 47 years ago, the year Marchionne, now 60, left the country with his family to move to Canada. Italians bought 1 million cars in 1966, the year Alfa Romeo -- now part of Fiat -- introduced its Duetto Spider.
This time around, the CEO is trying to escape to Germany. Fiat will sponsor the top-division Eintracht Frankfurt soccer team for at least three years and will put the Alfa Romeo logo on the team’s jersey next season.
To move cars now, the Italian carmaker’s dealers in Germany offered an average discount of 16.5 percent off list prices in February, the highest in the sector, according to data from trade publication Autohaus PulsSchlag.
Fiat isn’t alone in turning to Germany, which accounts for 25 percent of the region’s deliveries. The industrywide discount in Germany widened to an average 11.7 percent in February from 11.5 percent a year earlier, PulsSchlag estimates.
“Carmakers will look for demand elsewhere, so it becomes a fight on prices on a European level, not just an Italian one,” Marchionne said at an event in Geneva on March 19.
The problem for carmakers is that there’s not much room left to maneuver. Four of the region’s five biggest auto markets shrank in February, with the decline steepest in Italy.
There were no signs of a letup in March. Sales in Spain fell 14 percent even though the government is offering 2,000-euro rebates on cars. Italian deliveries declined 4.9 percent.
For Italy’s auto dealers, there is no way out of the downward spiral other than cutting costs and closing locations. The number of dealerships has shrunk 20 percent in the last five years to about 2,800 outlets, according to industry group Federauto.
Gruppo Colaneri has just two dealerships left in the country, down from six in 2008. It has reduced its workforce at its auto business by 75 percent to 50 employees.
“We had to take painful restructuring measures because the car dealership business is dying in Italy,” said Angelo Colaneri, who has been selling cars at Gruppo Colaneri in Rome for more than 50 years. “You can’t find a profitable dealer anywhere in the country.”
With austerity measures and a government hunt for tax cheats that targets luxury-car drivers, sales of premium vehicles and sports cars have also plunged.
Deliveries at Volkswagen’s Porsche in Italy tumbled 36 percent in the first three months of the year, while its Lamborghini brand dropped 13 percent. Sales at Fiat’s Ferrari nameplate fell 36 percent in the country.
In a rare bright spot, Ferrari deliveries in Japan for the 12 months ended March 31 surged to the highest in 12 years, according to data from Japan’s auto importers association. The growth there doesn’t offset weakness at home.
“Italy in 2008 was a market of 2,000 high-end super cars a year,” Lamborghini CEO Stephan Winkelmann said at the company’s headquarters in Sant’Agata Bolognese, in the countryside between Modena and Bologna. “Last year, it shrunk to 400 units, so it’s already a disaster” and the trend isn’t changing.
The crisis has created the best opportunities for those few who are indeed buying.
Andrea Visconti, a 37-year-old optician near Milan, wasn’t desperately looking for a new car when PSA Peugeot Citroen offered him a 30 percent discount a C3 Picasso wagon, on top of a generous valuation for his Peugeot 207. He didn’t hesitate.
“I will just pay 8,000 euros in cash for a car worth 20,500 euros,” he said. “So I jumped at the offer.”
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