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Italy unveils stimulus package

2009-02-09 07:51

Rome - Italy unveiled $1.7 billion of measures to help its struggling car industry on Friday, making the cash conditional on companies like Fiat keeping plants open. Analysts said the incentives may only boost demand short-term.

The plan, approved in a decree, includes a payment of up to 1 500 euros for trading in an old car to buy a new, greener one - at the high end of expectations.

The total package of over 2 billion euros ($2.56 billion) is also aimed at the household goods sector and is the latest attempt by the debt-laden government to boost the economy amid a global financial crisis.

A broad economic stimulus plan approved in November was panned as timid and lacking enough funds to make a change and the country's banks are still waiting for details on support for the banking sector promised by Rome last year.

Carmakers in turn have been told to maintain their plants in Italy and pay auto parts suppliers, Prime Minister Silvio Berlusconi said, as he announced Friday's package.

Fiat SpA, which dominates the country's car industry, had warned 60 000 jobs could be at stake if the government did not act and has closed plants across the country for short periods to cope with savage falls in demand.

The global financial crisis has prompted a resurgence of European protectionism amid worries for jobs.

Earlier this week, British workers forced France's Total to agree to hire domestic workers at a UK refinery.

Analysts have suggested Fiat might have to resort to permanent closures in order to cope with its near 6 billion euros of debt and rapid cash burn as it stockpiles unsold vehicles.

In January, new car sales in Italy dropped 33% - after a 13% fall in December - in a hiatus between old incentives to buy greener cars and the new measures, which nearly double what buyers get straight away to 1 500 euros.

Germany is offering 2 500 euros for new car purchases as part of a 1.5 billion euros package for its industry while France has said it could pump 6 billion euros of aid to its car makers.

Boost, but more needed?

Italy's measures could boost car sales by 200 000 units this year, leading to a 10% annual drop in car sales instead of a 20% fall forecast previously, said Serge Escude of Cassa Lombarda bank.

"The measures on incentives to buy new cars are in line with what the market was expecting, towards the higher end of the range," Escude said.

Auto industry research group Promotor said the Italian incentives could mean car sales this year come near to those of 2008, but its head Gian Primo Quagliano added "producers also need to do their part with discounts and promotions."

Italian car sales, before the decree, were expected to fall 17% this year, after a 13% drop in 2008.

Analysts also noted the package did not appear to include help on loans for potential car buyers.

Foreign car makers' association UNRAE welcomed the incentives and said the one-off payments could have an impact as soon as February but added measures to help credit were "indispensable, not to say urgent."

For the government, the measures could boost consumer spending by between 0.5% and 1% of gross domestic product this year, Berlusconi said.

The government would cover the costs of the package in part through lower payouts for temporary layoffs and increased tax revenues, according to slides from the prime minister's office.

The decree goes into effect immediately, but must be approved by parliament within 60 days.

Shares of Fiat were 6.78 percent higher near the market close, while shares of appliance maker De Longhi rose 5.62%. The shares of brake maker Brembo were up 1.44%, while kitchen goods maker Elica's stock was up 1.3%.

The whole auto industry in Italy employs 375 000 people either directly or indirectly.

The household appliance sector has also warned of worrying signs for 2009 after being hit by the economic slowdown last year.


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