Incentive programs designed to boost flagging sales, whether government or manufacturer based, have now become an important feature of the car market in Europe.
We have seen major schemes in Spain and France, as well as in Ireland, Scandinavia and Germany.
In fact, until the Prodi scheme was announced, Italy was considered the odd man out in Europe. Sales there collapsed in 1993 from over 2.3 million to 1.7 million units, and they have never recovered.
So while other countries have seen their performance gradually improve, the Italian market has gained the dubious distinction of suffering the worst and most sustained sales downturn in western Europe.
The Prodi scheme is broadly similar in style and substance to a number of the packages seen elsewhere in Europe. It was announced in early January and runs, at this stage, for 9 months to the end of September.
Under its terms the government will pay out up to L1.5 million-2 million (about $900-$1,200) for any car 10 years old or more, on the condition that the manufacturers match this amount.
What's more, VAT will be levied on the car price net of the manufacturer's discount. This in effect increases the discount by another 19 percent.
If manufacturers match the incentive, the total reduction will amount to L3.3 million ($1,950) to L4.38 million.
Discounts were in place before the scheme and these were mainly diverted into this initiative. Nevertheless, the reductions are very significant: A Cinquecento could enjoy a fall in its list price of around 22 percent, while a Punto, Italy's largest selling model, would show around a 16 percent fall.
Although the discount has two levels depending on engine size it remains significantly regressive with respect to car prices. The Cinquecento sees a 20 percent-plus reduction while the BMW 5 series sees only a 5 percent fall.
A fixed discount will inevitably favor the acquisition of small cars which have seen their prices reduced the most.
This effect has been a feature of scrapping measures elsewhere. Thus scrapping schemes tend to alter the size composition of the car market by encouraging the substitution of larger cars by smaller ones.
Car producers may not be geared up to supply the size profile of cars demanded during a scheme. Already in Italy the delivery time of such popular small cars as the Panda and the Polish-built Cinquecento has extended to several months.
It is the small-car segments where competition is most intense and profit margins are low. Boosting sales in these segments, therefore, may not be as beneficial to companies' bottom lines as one would first think.
At 27.8 million vehicles, the Italians have the second largest car population in Europe after Germany. They have two million more cars than France and twice as many as Spain. There is thus a very large pool from which to draw scrapping scheme participants.
The car population is also the oldest in Europe. Nearly a third of all cars will be eligible for the scheme. That means nearly 8 million drivers will qualify for the discounts.
The size profile of the Italian market is weighted heavily in favor of small cars. Last year nearly half of all cars sold in Italy came from the mini and supermini segments.
Against this background it is not surprising that we are now seeing the first signs of a large consumer reaction to the Prodi.
So if this is the start, what can we expect in the coming months and how big will be the inevitable downturn in 1998 caused by the pull-forward of sales into 1997?
The lag between sales and registrations means there will be a significant spill-over into the following months.
Thus October could still be above original levels, while the fall in November would be dampened. The largest drop would be apparent from December onwards and the negative impact would gradually diminish as sales began to move back on track.
Total sales therefore are set to rise to 2,040,000 units this year before plunging to an estimated 1,770,000 in 1998.
In both Spain and France fears over the depth of the downturn, likely once the subsidies ended, spurred governments to extend the schemes. It is quite possible that the same will happen in Italy.
If the life of the plan is doubled, discounts would run until June 1998. On this basis there is no final surge in 1997, but equally no strong downturn at the end of the year.
On balance the increased life of the scheme would boost sales by around 125,000 units. In this way the downturn in 1998 is avoided but the brunt of the negative effect is now pushed into 1999.