Thomas Andresen, Autorola Italy’s country manager, says growing new car sales give a false picture of the country’s automotive industry.

Challenging times ahead for the Italian market

New car sales in Italy grew for the fourth year running in 2017 to 2.2m and with positive GDP growth every month for the past two years the outward appearance is that the country is finally showing signs of shaking off its long-term recession. At the end of 2017 Italy remained Europe’s fourth largest new car market.

But with 2.8m registered unemployed in February 2018, the country’s employment rate is one of the lowest in Europe. The recent elections have also caused disruption to the country’s economy.

Incentives on offer

The new car sales figures are misleading as manufacturers and dealers continue to offer large incentives to continue stimulating demand and it was only these offers that helped the new car market grow in 2017. These incentives have forced many car dealers to stop trading and there is still a wide range of consolidation in the industry as businesses search for ways to grow and improve profitability.

Tourists however keep coming to the country in high numbers which has helped the rental sector remain strong. Tourism growth has helped the big rental companies justify growing their short-term hire fleets which has helped new car sales.

Regional disparity

There remains a huge split between different areas of the country with parts of the south struggling with higher unemployment and a weak infrastructure, with businesses such as car dealers only being able to log onto their broadband twice a day. The north meanwhile boasts a solid high-tech infrastructure that matches other European countries such as Germany and France.

This regional split means dealers in the north of the country have embraced online buying and selling of used cars very quickly while the south of the country still prefer to source much of their stock from physical auctions.

Currently up to 20% of Italian used cars being exported through the Autorola Marketplace online portal are being purchased by German buyers, while Austrian dealers are also buying used cars, not just for selling into the home market but also for export to the Czech Republic, Slovakia and Slovenia.

Italians going German

Meanwhile Italian drivers still prefer German cars whenever possible helping the Volkswagen group increase sales in 2017. The Far Eastern brands such as Hyundai and Kia continue to increase their market share to compete with home brands such as Fiat. Italy is one market where diesel sales are still strong – in 2017 they saw diesel sales rise, while hybrid car sales jumped by a massive 71% in 2017.

One year on from launch Autorola’s Indicata real time used vehicle management system has seen some strong traction as it provides a swift tonic to helping dealers and OEMs increase used sales. The bigger more professional dealer groups and OEMs appreciate the insights that Indicata provides will help reduce stocking days and ultimately profitability is worth investing in.

Remarketing concentration

Used cars is where many dealers are now concentrating so the growth of Indicata is likely to continue throughout 2018. Its ability to ensure dealers buy the used cars they know are in high demand and avoid those in low demand is a key factor in reducing average stocking days. Being able to also use Indicata insights to have the confidence to increase prices on a used car a dealer knows is in high demand or in low supply is a major benefit to them. It means Italian dealers can adopt a much more efficient stocking policy which they have welcomed.

Italy economics

A  shroud of political uncertainty has descended on Italy following general elections held on 4 March 2018. The vote resulted in a hung parliament, with no coalition winning an absolute majority and anti-establishment parties gaining over half of parliamentary seats. Given the fragmented political landscape and significant uncertainty, no future scenario can be ruled out, and a prolonged stalemate could negatively affect investor sentiment and weigh on the economy.

Separately, available data suggests that the economic recovery, although modest, is underway. In February business and consumer confidence rose, and the manufacturing PMI remained firmly in expansionary territory. However, in January retail sales dipped and the unemployment rate ticked up – even though the number of people employed continued to grow. Meanwhile, the banking sector continued to send encouraging signs: In January the growth rate of corporate lending gained considerable strength, while banks’ net bad debt declined to the lowest value since the end of 2012.

The outcome of political negotiations will significantly influence Italy’s economic prospects, as the formation of a fiscally irresponsible government could weaken already vulnerable public finances. This would generate financial instability, weighing on growth. Despite this downward risk, the economy should continue to expand at a mediocre, but steady, pace this year. Strengthening credit growth and healthy external demand will buttress fixed investment, while consumer spending should be underpinned by tightening labour market conditions and subdued inflation.

According to provisional data released by the National Statistical Institute (Istat) on 30 March, consumer prices rose 0.4% on a monthly basis in March, up from February’s flat reading. The figure mainly reflected higher prices for processed food including alcohol, and for tobacco and services related to transport—which were affected by seasonal factors. Meanwhile, inflation came in at 0.9% in March, above the previous month’s 0.5% print.

Core consumer prices, which exclude more volatile categories such as unprocessed food and energy, grew 0.5% in March month-on-month, following February’s softer 0.1% rise. Consequently, core inflation was 0.9% in March, up from February’s 0.6%. Finally, harmonised inflation came in at 1.1%, above February’s 0.7%.

The consumer confidence index released by Istat rose to 117.5 points in March, up from a revised 115.7 points in February – the reading significantly overshot market expectations of 115.0 points.

March’s reading reflected an improvement in consumers’ assessments of both their personal economic situation and the country’s current economic situation. Moreover, consumers’ expectations on unemployment also improved, as did their assessments of their current savings opportunities. On the other hand, consumers’ expectations on the future general economic situation declined slightly, probably due to the political stalemate resulting from March’s elections.