Boston, MA -- (SBWIRE) -- 06/06/2012 -- BMI believes that the collective labour agreement signed between Fiat and its 86,000 Italian work force in December 2011 - calling for increased shifts and shorter breaks in exchange for a EUR20bn investment at its Italian facilities - addresses only one of the issues confronting Fiat's Italian operations. Hurt by its poor model line-up and consequent decline in popularity, as well as high production costs, Fiat posted a 12% decline in European sales and a drop of nearly 20% in Italy, where a poor economic backdrop contributed to a 10.9% contraction in the country's overall new vehicle market.
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Indeed, the drop in sales is a sign of a widespread weakening in the consumer and investment spending, which will take a hit from the hefty tax increases introduced by Prime Minister Mario Monti with his 'Save-Italy' decree, combined with a drop in exports as the eurozone approaches recession territory and confidence collapses. In view of these conditions, BMI forecasts total vehicle sales to fall nearly 6% year-on-year (y-o-y), to 1.88mn units in 2012, which will dampen any prospects of Fiat's vehicle growth during the year. In turn, this will mean that domestic production will fall for the fifth consecutive year in 2012, down 0.9% following a 5.7% y-o-y, decline in 2011. The all-round pessimism has resulted in Italy being ranked at the ninth position in our Risk/Reward ratings for the autos industry in Europe.
However, there is hope for a significant change in the overall operating environment in Italy, thanks to three major decrees - dubbed 'Save Italy', 'Grow Italy' and 'Free Italy - passed by the government under Monti and aimed at tackling issues such as tax evasion, a large grey economy, byzantine bureaucracy, faltering productivity and lack of competition. Although the measures taken go in the right direction, it will take them several months, if not years, to have a positive impact on economic growth. As such, we see little prospects for any improvement in Italy's position in our ratings system in the short to medium term.
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