Subsidies boost European car sales

By Manuel Maria Ruiz and Helen Massy-Beresford

MADRID/PARIS (Reuters) - New car sales improved in France, Italy and Spain in June, thanks to government subsidies aimed at giving life support to the automotive industry during the economic crisis.

French new car sales rose 7.1 percent in June from a year earlier and in Italy rose 12.4 percent, with orders in the country rising 9 percent. In Spain the rate of sales decline eased to 15.9 percent last month from 38.7 percent in May.

In Spain, economists said that the economy could be showing signs of hitting the bottom of its deep recession, but industry associations in both France and Spain worried sales could slump again once government subsidies run dry.

A major car dealer in Britain last week also credited a recently-introduced scrappage scheme for boosting sales.

As of mid-June, around 200,000 new car registrations in France, or 20 percent of the total, were linked to a scheme offering cash payments for traded-in old vehicles, Xavier Fels, president of industry group CCFA, told a press conference.

Italy's car sales showed their first growth year-on-year since incentives were reinstated in February.

Spanish car sales were still around half the levels recorded before the financial crisis and the collapse of a housing bubble shoved the country into a recession expected to slice about 4 percent from national output this year.

"What is probably happening is that the economy has fallen to such depths that it is beginning to stabilise at low levels," said Nicolas Lopez, of M&G Valores in Madrid.

Industry groups in both France and Spain warned of renewed pain when subsidies run dry around the end of the year. Italian industry association Anfia called for incentives on eco-fuelled cars to be renewed for three years.

"We're still a long way from the end of the year (when the scheme is due to end)," said Fels, "and everyone is conscious of (the issue). We're sending the authorities a message of caution and it's up to them to decide the best way to play it."

But the Spanish government at least has little left in its kitty, with one of the world's largest fiscal stimulus packages set to push up the ratio of public debt to GDP by 15 percentage points to 60 percent by the end of 2010. The Bank of Spain has warned it has no room for further fiscal stimulus.

In France, PSA Peugeot Citroen (PEUP.PA) saw a 12.7 percent increase in sales in June, with the Citroen brand posting a 15.1 percent rise and Peugeot branded vehicles up 10.5 percent.

Renault group sales rose 10.3 percent in June, with Renault brand sales up 5.6 percent and Dacia sales rising 87.7 percent.

In Italy, Fiat (FIA.MI) sales from its three main brands jumped 17.1 percent, giving it 33.98 percent of the home market.

PSA Peugeot Citroen shares closed up 1.95 percent while Renault shares ended 2.58 percent higher and Fiat closed 1.89 percent higher. The DJ Stoxx European Autos Index .SXAP was up 2.38 percent.

(Writing by Jason Webb; Editing by David Cowell and Elaine Hardcastle)