Recent data from ‘Centro Studi Promotor’, a major Italian automotive research organization, highlights that sales of new cars in Italy in 2008 totaled about 2,160,000 units (down 13.4% from 2007). Early forecasts for 2009 expected a further decrease to about 1,850,000 units (down 14.3% from 2008). The decreases should be particularly high in the first quarter of 2009 (-25% over the same period of 2008) and the second quarter of 2009 (-19.5%) in the absence of ameliorative measures taken by the government.
This negative result is mainly due to the global economic crisis. The Italian Government has responded to the drastic contraction in this sector with an automobile assistance package in early February 2009. This package, part of a broader group of industrial sector stimulus measures, will provide purchase incentives for new vehicles ranging from 500 to 6500 Euros. At the time of writing, the measures still required parliamentary approval, but its passage is expected. In the draft approved by the government, the plan does not discriminate against automobiles of non-Italian companies.
On the other hand, the current economic difficulties offer opportunities for the used car market, which as of December 2008, represented more than 70% of the total sales (new + used).
Notwithstanding the economic crisis, the local market leader, Fiat Group (with its brands Fiat, Lancia, Alfa Romeo, Ferrari, Abarth, and Maserati) improved its market share by 0.5 points as compared to 2007. Fiat success is due, in particular, to the new model “500”, and to the range of new affordable city cars. Fiat is basically the only automotive manufacturer in Italy (apart from VW-owned owned Lamborghini).
Many foreign groups are active in the Italian market including Ford, GM and Chrysler; as well as PSA and Renault (France); Audi, BMW, Mercedes, Porsche, Smart, and Volkswagen (Germany); Daihatsu, Honda, Infiniti, Lexus, Mazda, Mitsubishi, Nissan, Subaru, Suzuki, and Toyota (Japan); Hyundai, Kia, and Ssangyong (South Korea); Aston Martin, Bentley, Jaguar, Land Rover, Lotus, Mini, and Rolls Royce (UK), Lada (Russia), Seat (Spain), Skoda (Czech Republic), Dacia (Romania), Volvo and Saab (Sweden). Chinese (DR, Great Wall, Shuanghuan) and Indian (Mahindra, Tata) groups are entering the Italian market too.
All the Big Three US manufacturers, Chrysler, Ford Motor Company, and General Motors Corp., operate in the Italian market mainly through their European subsidiaries (generally headquartered in Germany). They usually sell their cars manufactured in Europe (Germany, France, Austria, Belgium, Spain, Sweden, etc.); direct imports from the U.S.A. are relatively few (GM also imports Chevrolets from South Korea). The following U.S. (or U.S. owned) brands are available in Italy: Chrysler, Dodge, and Jeep (Chrysler); Ford, Mazda, Volvo (Ford Group); Cadillac, Chevrolet, Corvette, Hummer, Saab and Opel (GM)
SUV’s are the most recent automotive craze in Italy, but, as elsewhere, they are facing criticism due to their environmental impact and the difficulties in driving and parking them in the often small and crowded Italian cities. Some U.S. SUV’s are directly imported into Italy by local specialized importers and they tend to cater to the request of wealthy individuals.
In recent years, Italian drivers have shown a preference for diesel cars due to the lower fuel price. Diesel engines equip not only larger cars, but also smaller ones like the city car Smart and the top selling Fiat Punto. In 2008, rising oil prices almost equalized the price of gasoline and diesel. As a consequence, gasoline cars, which have higher fuel consumption, but lower retail price and insurance costs, have retaken the lead in sales.
In early 2005, the Fiat Group ended most of its financial and manufacturing agreements with GM, signed in March 2000. Nevertheless, General Motors Powertrain Europe kept its Powertrain headquarters and engineering center in Turin, which is taking the lead in the group for diesel engine manufacturing and engineering activities. GM Powertrain Europe became operational in May 2005, and has engineering and manufacturing centers in Austria, France, Germany, Hungary, Italy, Poland and Sweden.
In November 2005, Fiat struck an agreement with Ford Europe to jointly develop a small car, (engine and transmission supplied by Fiat), to be produced in a Polish Fiat plant and marketed from 2007-2008. The results of the agreement are the new Fiat “500” and the just released new Ford KA model.
In January 2009, Chrysler and Fiat announced an agreement whereby Fiat would receive a 35% stake in Chrysler (which could be raised to 55%). Fiat is not paying cash, but will share products and platforms for small cars, as well as its green technologies, with Chrysler. The deal will help Fiat return to the U.S. market where it has long been absent. Chrysler will be able to sell in more foreign markets, like South America and Asia. The alliance should allow both companies to optimize their respective manufacturing footprint and global supplier base, and to save by combining their purchasing power. This alliance could lead to new opportunities for U.S. parts and components manufacturers.
The local market for automotive parts and service equipment declined during recent years, due to a general decrease in passenger car production. The automotive parts market constantly changes, so it is difficult to speculate how it will develop in the future as it depends heavily on car sales.
The current decrease in car sales has certainly had a negative impact on the domestic industry, and will have future consequences, especially as regards the OEM market. Impact on the aftermarket should be less. Many car owners who are not replacing their old cars will still need some more maintenance to keep their old cars safe and efficient.
Local motor vehicle production totaled more than 900,000 cars and 370,000 industrial vehicles in 2007. Expectations are 2008 will show a slight increase.
Domestic Italian production of automotive parts and service equipment covers approximately two-thirds of the demand compared to one-third covered by imports. Sales of original equipment (OE) parts account for around 65 percent of the total components demand, while aftermarket (AM) sales account for 35 percent.
Big multinational firms (many of them American with operations located in Italy) control the local tier-one parts market. The need for proximity to the manufacturer, delivery requirements, transportation costs, etc., makes it very difficult for firms not physically located in Italy to enter this competitive market.
Imports are in general higher in AM rather than in OE, due to the development of modern distribution channels and transnational operators, improved performance of foreign automotive organizations and greater competitiveness of imported products. Products are imported from European countries like Germany (around one-third) and France (about one-fifth). Imports from the U.S. are relatively low, but interesting niches exist.
Italy has one of the highest auto densities in the world, (and Europe’s highest) and one of the oldest circulating auto fleets in Europe, (about one-third is older than 10 years). Consequently, the budget and subsequent expenses related to maintenance repair equipment have continued to increase during the last few years.
The higher frequency of periodic compulsory motor vehicle inspections and stricter pollution control regulations in Italy have forced the replacement of parts and the use of more modern service equipment than was common in the past. Furthermore, as the electronic systems on cars become increasingly sophisticated, service shops have to invest in new equipment and technologies to provide suitable maintenance.
The new European standards on auto servicing, implemented in 2003, have opened some interesting prospects for independent repair professionals. Due to the new rules, the independent professionals are entitled to receive from car manufacturers any technical information and training needed to repair any kind of automobile. This may represent a significant market opportunity for Italy’s 50,000 independent repair professionals who, along with around 4,000 garages belonging to the official networks, make up the Italian auto repair industry.
All the car manufacturers have been recently forced by new, mandatory EU regulations to extend to two years the minimum period of warranty for cars. As a result, customers are utilizing official garage networks more than before, at least while the cars are under warranty. This strengthens the manufacturer’s relations with the customers and allows the manufacturer to generate more revenue, otherwise lost due to increasing competition in car sales.
The aftermarket is characterized by two big trends: first, the so-called liberalization of the distribution allows the possibility of using spare parts “complying with the original”, and of “equivalent quality” to those made by manufacturers. This reduced the hold on the market by manufacturers. On the other hand, manufacturers reacted through the extension of the product warranty for up to five years. Warranty extension is one of the few marketing tools that manufacturers can use to differentiate their competitive offer.
Due also to the fact that some experts believe there is little or no quality difference among the top brands and that non-genuine parts offer comparable quality at a lower price, part of the car manufacturers’ control of the market has been shifted to distributors and users.
Auto accessories and tuning sector
Interesting opportunities exist in the auto accessories and tuning sector, which is expected to remain stable (or even grow) in 2009.
In general, companies operating in all the sub-sectors may expect to find buyers in the market, but the car audio and video/car entertainment sub-sectors present particularly interesting opportunities.
One of the latest crazes for Italians is info-mobility, and many car owners are installing GPS satellite navigators. Tools such as navigators are quickly spreading into the consumer goods market, and are now available in most of the department stores. From dashboard GPS to fleet management solutions, the market is growing, and many U.S. manufacturers are already present here. Moreover, some opportunities will also arise for new-to-market companies offering cutting-edge new products.
LPG and CNG fuels: Another sector which may supply U.S. manufacturers with interesting opportunities is related to LPG and CNG fuels. Italy ranks second in the world in natural gas (CNG) vehicles after Argentina, and ranks first in Europe in regard to LPG vehicles.
The alternative fuel field is expanding fast in Italy: overall there are more than 1,800,000 cars in Italy that already run on LPG or CNG, and are supported by around 3,500 specialized garages and 2,600 fuel pumps. In 2008, 350,000 cars were either converted from gasoline or bought as new cars already fitted for using CNG or LPG.
There is also some interest for the hybrid-electric cars, with Anti-Particle Filters and for small cars with low CO2 emissions, which evidences the greater attention being paid to ecological cars and clean fuel.
CNG and LPG vehicles are among the few vehicles currently allowed to circulate on any day, as they abide by all the stringent regulations implemented to limit the pollution in city centers in various Italian cities. Moreover, CNG and LPG vehicles’ consumption is often lower than similar gasoline or diesel fuel. As a consequence, most of the car manufacturers operating locally are trying to offer LPG and CNG versions of their cars, a market niche that is expected to account for five percent of the total market in 2008, compared to 3.5 percent in 2007.
In December 2008, the Bologna Motor Show, a major international automobile exhibition, focused on alternative fuel technology for cars and eco-friendly fuel, and hosted the second edition of “EcoCity”, which included a vast display of components and accessories covering the entire sector for the conversion of vehicles to CNG and LNG, including both AM and OEM systems. “EcoCity” was an area where manufacturers of gas fuel kits exhibited the latest technology in CNG and LPG.
Best prospects include a range of passive and active security components/accessories, environmentally friendly features, diagnostic apparatus and light weight/acoustic insulation and advanced materials, as well as auto tuning components, info-mobility solutions, and equipment for LPG and CNG vehicles.
In general, all products with high technology content can find opportunities in the Italian market. This is valid both for electronics and for accessories. As a rule, Italians are ready to consider new products and to pay extra money for something that is innovative and new. Fashion can also be an important decision factor in this sector.
Currently, U.S. exports may also be boosted by the favorable exchange rate between the dollar and the euro. Growth in U.S. auto parts, accessories, components and service equipment shipments to Italy is expected to experience a two percent average annual increase for the next couple of years.
Public tenders: in the automotive sector, local transport authorities, police forces, etc., may issue public tenders for additional equipment, accessories and parts. Companies wanting to participate in bids are strongly encouraged to establish an organization in Italy to help them in dealing with the sometimes complicated public tender process.