Fall of the Regio Esercito (5 - 25 December)
Rather than the anticipated three day delay before the tanks and troops could start rolling again, five long days elapse. A number of minor Allied attacks on our lines were swatted away, but no major developments occur. This is because Allied attention is focused squarely on the roughly 700,000 Italian soldiers trapped on French soil. During these five days, the Allied armies have - one by one - extinguished the resistance that faced them from a number of isolated trapped Italian formations dotted between the main Italian force and the frontline now within their borders. In just five days, 160,000 Italians had been killed or captured, bringing the total losses to 200,000 since 16 November and possibly as high as half a million since the French betrayal in the spring. The main Italian force had been under considerable pressure, forced to give up ground in the east and north. A vast uncrossable gap now exists between the
Regio Esercito and their homeland. A small gap remains between the Italians and our own men, but with the Italians in retreat and a multitude of Allied forces positioned between it is not known if the Italians can be relieved or not.
The strategic situation on 5 December.
Inserts: the attack launched by Second Panzer Army
At midday, 5 December, the Second Panzer Army once again jolted forward. Freezing American, British, and French troops, clad in thick winter coats, man trenches and stand definitely in the way. As our troops surge forward, Australian, American, British, Canadian, and French soldiers throw themselves upon the salient that has taken so long to cut out. After two days, most of these counterattacks have been fought off allowing the Second Panzer Army to push forward. The exception is at Sancoins. Here, a Commonwealth force of Brits, Australians, and Canadians have undertaken a major effort and are wearing down the First Panzer Army's bridgehead across the Loire. Determined Allied action has once again immobilized the First Panzer Army and delayed the Second.
Late on the 8th, the staff of OKW and OB West convened to discuss the overall strategy on the Western Front and the impending strategic crisis. The Second Panzer Army are still battling to attempt to break through to the Italians, but their pocket appears to be a state of collapse. In Italy, our allies have managed to assemble a motely assortment of units to try and block the American advance but it is to no avail. The Americans are quickly advancing down the Po Valley towards Milan. On top of which, an additional 30,000 Italians have been lost within the last few days. They appear to be on the verge of collapse and defeat. The Third Panzer and the Seventeenth Army both remain uncommitted, due to a lack of room to deploy. Both could, with some logistical difficulty, be thrown into the battle in a last ditch attempt to break through to the Italians. However, doing so would leave nothing to counter any Allied moves and remove the much needed operational and strategic reserve until the opportunity arises to utilize them. As the staff make these various arguments, news reaches the conference of a massive Allied attack. With the Italians on the verge of defeat, the Americans have once again turned their attention upon us. At Vesoul, near the start line and manned by a handful of infantry divisions, an estimated 12 American divisions had struck. With this, the conference was put on hold. The Seventeenth Army was ordered to advance south, a short distance from its billets, and engage the American army that was attempting to break through.
Troops in a damp muddy foxhole, near Vesoul.
While American infantry are trying hard to break through into the base of our salient, our offensive still moves forward: slowly but surely. On 10 December, Moulins finally falls. Once again, the effort is in vain as the Italians have long since withdrawn from this area and are again just out of reach. There is not much time to mull over this fact, as the Allies immediately hit back. Artillery, planes, tanks, and troops strike at our recently arrived troops. As this attack is fended off, First Panzer Army reports the loss of Sancoins. The bridgehead across the Loire, under attack for nine days by a strong Commonwealth force, is given up on the 14th. This blow is offset by the positive news received by Second Panzer Army. Near Roanes, the lead panzergrenadiers report the Anglo-Canadian troops facing them are in a complete rout and it should only be a matter of hours until a complete breakthrough is achieved. The panzergrenaders are ordered to stay on the heels of the fleeing troops and open the roads to the tanks behind them. The hours slowly tick by and the triumphant news does not materialize. Instead, Second Panzer Army headquarters and OB West are informed that American troops have arrived in the sector and have steadied the line halting all progress. From the center of the front, having recovered from the Allied attacks, the 5th Panzer and 97th Motorized Divisions (both of Second Panzer Army) launch a final last ditch effort to break through to the Italians. These two formations are the most western based units within the entire German army, and without any flank protection. Together they assault the Allied lines protecting Vichy.
The attack towards Vichy.
As the depleted panzer and panzergrenadier regiments move forward, Italian formations join the battle and launch an assault on Vichy from the southeast. As the 14th pushes into the 15th, the Italians are forced to abandon their effort and fall back due to flanking Anglo-French pressure. Despite this, our men continue to push forward determined to open a corridor to the Italians. To the east, at Vesoul, American troops overrun the area after inflicting over 4,000 casualties upon our force. Snow had now started to drift down across the entire frontline blanketing the ground in a thick white layer slowing all movement to a snail pace. So while the Americans had taken Vesoul, they were not presenting an immediate danger of breaking through due to the harsh weather. Thankfully, as the Seventeenth Army was having a great deal of problems attempting to get the battlefield leaving only light forces to screen the new American position.
The next three days brought about the end of the offensive. However, events did start positively. Early on the 17th, the American and Canadian infantry manning the forward defenses of Vichy began to the retreat. As our troops started the slow move forward to take control of the French spa town and prepare to carry on the advance to link up with the desperate Italians, British troops emerged from the town in a vicious counterattack stopping our progress dead in its tracks. General Hoth, the commanding officer of the Second Panzer Army, ordered his two heroic divisions to stand down and pull back from Vichy. The allied control of the area was too strong, and unbeknownst to the men of the 5th and 97th divisions, the Italians were in a headlong retreat moving further and further away from them as very hour past. The main attack towards Roanne was allowed to continue as there was reserves available to be pushed through to make the linkup. Two days later, Roanne finally fell. The defense of the town had cost the Allied powers over 10,000 men, yet their deaths were not in vain from the Allied point of view. Their defense had bought the time needed for their comrades to push the Italians once more out of reach of relief. While the ramifications of this victory were being mulled over, that evening the Italians reported the loss of both Milan and Genoa to the Americans.
The front, 19 December.
British troops, during their counterattack around Vichy.
It was clear what the next course of events would be. The Italians were going to seek peace. Doing so would open up the southern borders of the Reich to invasion. Case Lombardy was put into motion: the strategic reserve (the Third Panzer Army and an assortment of minor formations from within the Reich) was ordered to board trains and depart for Italy with the orders that Allied troops were not to cross the border into Germany. The offensive towards the pocket was called off, no further attempts were to be made to breakthrough. The next day, sensing the troop deployment as Third Panzer Army began to depart from the base of salient, the Americans launched another major attack on our lines. While our troops did their best to fend off this attack from their frozen and snow covered foxholes, American troops continued to roll across the much more mild and non-frozen Po Valley. On Christmas Day, the Italians unconditionally surrendered. The Third Panzer Army arrived shortly after the announcement and just in time to block the American advance into the eastern Alps and towards our borders. A third front had just opened.
Third Panzer Army arrives just in time, and prior to the Italian disarma
Although I do note you say you are going to "stay as historically plausible as possible" so I guess that answers that question. 
