Italy is ready to extend vehicle buying incentives to help the industry beyond the year end if necessary, Prime Minister Silvio Berlusconi said on Wednesday, in response to lobbying from Fiat SpA and other carmakers.

Asked on Italian TV about Fiat Chief Executive Sergio Marchionne's warning about the impact of ending the incentives this year, Berlusconi said: If, when they expire at the end of the year, it is necessary or helpful, then the government will not shrink from this.

Marchionne, who had warned it would be disastrous if Italy did not extend the car-buying incentives, told reporters the prime minister's latest comment was encouraging.

The Fiat boss, who has previously said he favours phasing out incentives over two years, said on the sidelines of an industry seminar he was ready to work with the system to find a solution for incentives in 2010 and 2011.

Ford Motor Co has also asked European governments to keep incentives for consumers to scrap old cars because demand remains weak and an abrupt suspension of the schemes could lead to another sharp decline in sales.

New car sales in Europe have shown a slight recovery since June after a 14-month slump, fuelled by state incentives offering cash bonuses to people who trade in their old vehicles for new, more fuel-efficient models.

Marchionne said without the incentives, Italian car sales would next year be under 2 million units, a drop of 600,000 on 2007 levels. He saw European car sales falling 7.5 percent this year to 13.5 million units and said the most credible forecasts put sales European sales at almost 12.5 million in 2010.

Industrial vehicle sales this year would be half the 2008 level, added the Fiat chief.

Some other European governments have already signalled they will phase out such assistance gradually, while Economy Minister Giulio Tremonti has said Italy would take the decision together with its European Union partners.

France says its scheme to swap old cars for new ones will continue into 2011 as part of a gradual phasing-out and Britain is extending its scrappage scheme, which would have run out before its scheduled end next February, by 100,000 cars.

But Marchionne described as unfair competition a German plan to give Opel 4.5 million euros ($6.6 million) aid as part of the planned sale of General Motors' stake in the European carmaker to a group led by Canada's Magna.

(Reporting by Giselda Vagnoni and Stefano Bernabei; Writing by Stephen Brown; Editing by Greg Mahlich and David Holmes)

($1=.6819 Euro)