One of the biggest car industry decisions to be taken in 2011 will be whether Fiat decides to give up on Alfa Romeo and sell it to VW.

VW has made no secret of its desire to buy Alfa and Sergio Marchionne, Fiat’s visionary boss, is said to be weighing up the pros and cons of keeping its problem child.

The UK provides a good litmus-test of the scale of the problem.

Alfa Romeo has long seen the UK as a critical country as it is the second biggest European market for premium cars and it does not have the massive domestic industry of Germany, the largest market.

Back in 2007, the Alfa Romeo’s then chief executive Antonio Baravalle said UK sales in 2010 could reach 30,000: “The potential could be even more than that, but we are keeping our two feet on the ground.”

That ground must have been located at quite an altitude. Alfa’s 2010 sales will come in at around 8,000 units – just 27% of that target.

And despite the new product offensive over the last two years, 2010 sales are down on 2009’s 9,000 sales.

What is particularly noticeable is how Alfa models seem to burn out after a couple of years on sale.

The Brera, introduced in 2006, dwindled to just 569 units in 2009, its last full year of production. It is not the perfect coupé, but it is very striking and has its good points.

The situation for parent company Fiat is not much better. UK sales have been steady at between 50,000 and 60,000 since 2006.

However, Fiat is appallingly dependent on the city car segment: 49.9% of sales in 2010 came from the 500 and 20.7% from the Panda – that means 71% of sales came from the smallest, lowest-margin sector of the market.

It is believed that Fiat can do no more than break even on car sales in Europe – its profits come from commercial vehicles and cars in Latin America.

Fiat has to break out of its small car ghetto and, in theory, Alfa should be the brand to do it.

However, is the company better off flogging Alfa and using the money to invest in larger Fiats?

Either way, one of the brands has to make a success of medium sized cars for the company, otherwise the future looks bleak indeed.