MILAN (Bloomberg) -- Holiday shoppers pack the streets circling Milan's Gothic cathedral carrying bags from Gap, Gucci and Prada. Just a few blocks away at a Fiat S.p.A. dealer, there's no sign of the bustle: The showroom is empty.
“Who does come in is interested in buying a specific model and visits several dealers to find the best deal,” says Cristina Fermi, a sales assistant at the dealer. “The risk is a cannibalization of the market. We may bleed ourselves dry to get a new client in a losing competition with other dealers.”
About a third of Italy's 3,600 dealerships are at risk of going bankrupt in the next 18 months, taking 15,000 jobs with them, as car sales plunge following the expiration of government incentives, the Italian dealers' association said.
Deliveries in the country, Fiat's biggest market and Europe's third-largest auto market, plummeted 21 percent last month.
Auto sales in Italy will continue to decline in the first quarter, Fiat CEO Sergio Marchionne told analysts Oct. 21, without providing figures. The CEO says Fiat's Italian business will still be unprofitable this year.
The Italian market is dragging on Fiat's profit potential. Fiat raised its 2010 forecast, thanks to demand in emerging markets. Full-year trading profit will be at least 2 billion euros ($2.6 billion), up from a previous target of as much as 1.2 billion euros, Fiat said in October. The company, which also controls Chrysler Group, is splitting into two by spinning off its industrial business on Jan. 3.
“With 30 percent of sales exposed to an Italian car market that we estimate could fall 7 percent in 2011, the outlook is tough,” wrote Bank of America Merrill Lynch analysts led by Fraser Hill in a note to clients Nov. 22.
'Extraordinary resources' for dealers
The number of Italian dealers shrunk by more than 200 in 2010, and more than half of current dealerships are losing money, the dealers' association estimates. Last year Italy offered 1,500 euros to consumers who traded in cars older than 10 years. The incentive program, which was part of a 2 billion- euro stimulus package approved by Italy's government in February 2009, wasn't renewed for 2010.