The Italian government has announced that it is to end its raft of 'eco' incentives to encourage consumers to buy new cars, with Fiat CEO Sergio Marchionne responding by saying that he agreed with the decision despite the impact that it is expected to have on domestic new car sales. Marchionne added in his comments yesterday that he expected 350,000 fewer cars to be sold in Italy this year a result of the withdrawal of the incentives.

Fiat, which takes a third of all domestic car sales, has been the biggest beneficiaries of the scheme. Until last week Marchionne has called for the continuation of the incentives and their gradual withdrawal, stating in Fiat’s annual report last month that without them this year’s profits would be flat.

However with the company's unions pushing for any continuation of incentives to be linked to the future of the closure-targeted Termini Imerese factory, Marchionne performed a U-turn last week and said he would accept their withdrawal. Last month Italian new car sales rose 30.22 percent, but ominously forward orders dropped 10 percent. In recent days Italian Premier Silvio Berlusconi has stated that Fiat didn’t seem interested in the continuation of incentives and this week Economy Minister Claudio Scajola admitted that the government had thrown the towel in over getting Fiat to keep open the beleaguered Sicilian factory and would now choose the best option for saving jobs out of the ten expressions of interest he says have been received. With the 'carrot' of consumer incentives off the table Fiat is free to press ahead with plans to close the plant once production of the current-generation Lancia Ypsilon runs out next year, although Italian media commentators have been quick to comment that Marchionne has paid a very high price to get his way to be rid of what is the smallest and least-profitable of Fiat’s six domestic car plants.

Responding to the announcement by Scajola that auto incentives, except for R&D assistance, would be withdrawn, Marchionne said yesterday: "We agree with the decision; we understand the reasons behind it", reported the AGI news agency. His comments were made to journalists on the sidelines of the Confindustria Awards for Excellence Andrea Pininfarina 2010. The Ansa news agency meanwhile reported Marchionne as saying that he believes that Italian car sales will shrink this year by 350,000 units but added that – apart from Termini Imerese - no other factories are under threat of closure. He did say though that more workers could be laid off under the government’s temporary redundancy scheme. However Marchionne was pretty upbeat saying that the government's decision was a "shared solution" and something he could accept.

Fiat is the biggest beneficiary of the incentives, two of the top-three best-selling LPG cars in Italy last month came from Fiat Automobiles and two further Lancia models made it four representatives from Fiat Group Automobiles (FGA) in the top-ten while amongst methane-powered cars Fiat had a clean sweep of the top-four positions during January. The Italian government has given generous incentives for LPG and Methane-powered cars. The immediate loser from FGA will be the Lancia brand which has seen its stunning volume rise last year firmly grounded by the sale of LPG models, in fact almost half of its sales volumes in Italy last month comprised the LPG versions of the Ypsilon and Musa combined together.