New car demand plummets in Italy even ahead of the new tax system

26 February 2019

Neil King

New car registrations plummeted by 7.5% year-on-year in Italy in January. The drop in demand for new cars is hardly surprising as Italy has fallen into technical recession (GDP declined by 0.1% and 0.2% in the third and fourth quarters of 2018 according to the OECD) but the January result was weaker than expected.

This is partly because there was an anticipation that consumers would rush to register new cars with CO2 emissions over 160g/km, ahead of the introduction of the new emissions-based tax structure in March, and that this activity would compensate more for the underlying downturn in demand. This is also compounded by dealers pre-registering cars to avoid the higher tax liability from March.

Stefano Ferruzzi, Country Manager for Autovista in Italy, has previously commented that ′this will further penalise the used car market, already impacted by the enormous stock of 0km used cars available.’ One of our key predictions for 2019 is a weakening of residual values in Italy as these 0km cars will be priced low to be sold on quickly.

The new tax system introduces a ′bonus-malus’ (incentives-penalty) scheme based on NEDC (or NEDC-correlated) values that is similar to that in effect in France. The incentive is also increased if a car that only conforms to emissions standard Euro 4 or below is traded in as part of the transaction.

In 2018, the A and B segments accounted for about 40% of new car registrations in Italy according to data from the Italian carmakers’ association ANFIA. The B-SUV and C segments captured a further 15% and 12% market share respectively. Larger cars therefore command a third of the Italian new car market. Given that the majority of larger cars and numerous variants of models in the B-SUV and C segments exceed the 160g/km CO2 threshold, about a half of all new cars sold in Italy will be subject to a tax penalty from March.

ANFIA data also reveal that battery electric vehicles (BEV) and plug-in hybrids (PHEV) only accounted for 0.3% and 0.2% respectively of new car sales in Italy in 2018. Accordingly, a maximum of 0.5% of the Italian market will be eligible for a bonus as their CO2 emissions are below the 70g/km limit.

The new tax structure therefore penalises about 50% of the Italian new car market but will incentivise less than 0.5%. Given this, the pull-forward effect on new car registrations was expected to be greater in January but registrations do obviously lag behind sales. Registrations of new cars with more than 160g CO2/km will certainly be more inflated in February but further to the January result, Ferruzzi commented that ′I am really concerned about the final figure in 2019. The market could be down 5%, 8% or even 10%.’

The amended tax system has, unsurprisingly, been heavily criticised, especially as it was hurriedly approved by the Italian authorities on the last working day of 2018. It has even led Fiat Chrysler Automobiles (FCA) to review its investment plan for Italy.

Numerous FCA models will be subject to the penalties but there is currently not a single FCA offering – even from the FIAT brand – that is eligible for the incentives. For example, even the 2-litre ′Multijet’ variants of the Jeep Renegade and FIAT 500X small crossovers face the tax penalty from 1 March. According to ANFIA data, the 500X was the second best-selling car in Italy in 2018 but only gained 8th place in the January registration figures. The Renegade, which ranked 6th in 2018, even fell out of the top ten in January. The pull-forward effect should boost registrations of the Multijet derivatives of these models in February but the new tax system will hurt their popularity thereafter, along with half of Italy’s new car market.