The Italian government has agreed to extend the tax breaks for efficient new cars through 2008, easing fears that Fiat Group Automobiles could suffer lower sales in its domestic market next year.

The Italian government has agreed to extend the tax breaks for low polluting new cars through to the end of 2008, easing fears that Fiat Group Automobiles could suffer lower sales in its domestic market next year.

The current raft of incentives were due to run out on 31st December and the government had previously said that it wasn't keen to extend the programme any further. However during the last government meeting of the year the incentive scheme was voted through as part of the 'Milleproroghe' decree. The news revealed by the Infrastructure Minister Antonio Di Pietro to journalists after the meeting.

The incentive scheme sees the government rewarding car buyers who trade in older, high polluting models (of Euro0, Euro1 and Euro2 standard) built before 1st January 1999 in favour of new, more environmentally-friendly ones, that are to Euro4 or Euro5 standard. They will get a road tax exemption next year plus a bonus of 700 euros, and an extra 500 euros if they trade-in two cars.

"We have strengthened the environmental objectives," the Industry Minister Pier Luigi Bersani commented, "favouring more eco-sustainable cars and fostering measures which favour local public transport." Drivers who get rid of cars older cars without buying a new one will be offered other incentives, including free public transport.

The proposal to scrap the scheme had concerned Fiat, which has been one of the largest beneficiaries of the incentives due to the high concentration of small, economical and efficient models in its range, and fears that it could affect domestic sales next year have undermined its share price in recent weeks. Analysts had suggested that without the incentive programme, the Italian new vehicle market could contract by up to 13 percent next year.

Last month the Fiat Punto was once again Italy's best selling car, followed by the Fiat Panda, while making it a clean sweep for the Turin carmaker in the top three, was the new 500. All three of these models fall into the remit of the scheme. In fifth place during November was another economical small car from the Fiat Group Automobiles stable, this time Lancia's Ypsilon model.

Yesterday traders on the Milan bourse registered their relief at the news, sending Fiat Group shares up 2.48 pct to 17.7 euros at the close of trading. Fiat's Preferred Shares (+3.35 pct) and Saving Shares (+2.93 pct) were also both up at the close.