Auto destocking ending but real recovery will be slow

* Destocking ending as scrapping schemes boost sales

* Manufacturers will face "payback" when schemes end

* Recovery will be slow

By Helen Massy-Beresford

PARIS, June 11 (Reuters) - Destocking in Europe's crisis-hit car industry is coming to an end, but manufacturers and suppliers should prepare themselves for a long, slow recovery, analysts said on Thursday.

Car makers were forced to slash production from late last year, idling factories and cutting jobs, with major knock-on effects on suppliers, as the credit crunch and worsening economic climate pummelled demand for new cars.

"Inventory reduction is very close to being over -- this is a big relief for suppliers," Nigel Griffiths, Chief Automotive Economist for forecasting and analysis group IHS Global Insight told a conference.

French car parts maker Valeo's (VLOF.PA) Chief Executive Jacques Aschenbroich said earlier this week that he had seen signs destocking was coming to an end. [ID:nL91000879]

Production will ramp up in the third and fourth quarters, even if there is no further recovery in sales, Griffiths said, as the brutal production cuts manufacturers had to make to reduce their bloated stocks of unsold vehicles mean there is a deficit to be made up.

France's Renault (RENA.PA) cut production by 38.2 percent in the first quarter, compared with the same period of 2008, but production was 7.2 percent higher than in the fourth quarter of 2008. [ID:nLT680205]

FAMINE TO FEAST?

Still, the industry should expect "payback" when government scrapping schemes introduced in many markets, come to an end, European director for IHS Global Insight Colin Couchman said.

Recovering production may take a dip at this point: "We think it's going to be famine to feast for certain brands, and when the scrapping schemes are switched off, that situation will reverse itself," he said.

Under the scrapping scheme drivers get cash payments when they trade in old cars for newer, greener models.

"The good news for now is that scrapping incentives have effectively underpinned the floor of the market," said Couchman.

IHS Global Insight estimates that 2.6 million cars worldwide, or one in 20 sold this year, will be sold as a result of government stimulants schemes.

In Germany -- where motorists get 2,500 euros ($3,508) for trading in a car at least nine years old for a new model, car sales jumped 40 percent in May. "But they are short-term measures so payback is inevitable. We think that the structural trend of the market has been damaged by the economic crisis," Couchman said. "Europe could see two to three lost years, in terms of inventory, sales performance and production across the region." ($1=.7126 Euro) (Reporting by Helen Massy-Beresford)