AUTOSHOW-Ford raises Q1 Europe production, wary of demand

* Ford increase in Europe production mainly small cars

* Ford remains wary of demand after scrappage programs end

* Sales so far in 2010 more robust than company forecast

GENEVA, March 1 (Reuters) - Ford Motor Co F.N has seen some promising signs in larger European economies but remains wary about the impact of the expiration of government scrappage programs and the strength of some economies, Ford of Europe's top executive said on Monday.

Ford has raised its first-quarter European production by about 5 percent after stronger-than-expected sales of some vehicles early this year, but it has left its full-year industrywide sales forecast intact, Ford of Europe Chief Executive John Fleming said.

Ford raised its first-quarter production plan by about 20,000 vehicles, much of it small cars such as the Fiesta but also some commercial vehicles, he said.

Looking at Europe as a whole, industrywide sales have been stronger than expected during the first two months of the year, but Ford wants to see more results before changing its full-year sales outlook, Fleming said.

The automaker also has seen profit-eroding incentive spending jump sharply in Europe across the industry as government scrappage programs end, he said.

Government incentive programs to turn in older vehicles, called scrappage programs in Europe, are similar to the U.S Cash for Clunkers program that boosted sales during the summer of 2009.

Ford will not raise incentive spending in order to defend market share, especially if doing so would cuts into profit, he said.

The company has forecast a steep drop in industrywide sales from last year and wants to see the impact of government incentive programs expiring before making changes, Fleming said.

The scrappage programs have boosted sales in Europe, especially of less expensive small cars.

“The scrappage is coming off progressively, and everywhere you see it coming off you see the market going down. So it is difficult to make a true call at the moment,” Fleming said in any interview on the sidelines of an event before the Geneva Motor Show.

After two months, industrywide sales in the European region have been running at an annual rate of 15.6 million to 15.8 million vehicles, far stronger than Ford’s outlook for the year at 13.5 million to 14.5 million.

Fleming said the German market had dropped considerably after the scrappage program expired, and he needs to see the impact in Britain, France and Italy as well.

“At the moment, I’m beginning to think we still have made the right call, but the timing may be disconnected a little bit,” he said.

In Europe, the larger economies are generally stronger than the smaller economies, as shown by the debt crisis in Greece. But Fleming said he was not ready to say that strengthening economies in Europe will mean higher auto sales.

Excess production capacity continues to pressure the European region, with little reduction industrywide despite the turmoil among companies in the last few years, he said.

“In the U.S. some significant capacity has come out,” Fleming said, referring to plant closings. “In Europe so far, no capacity has come out.”

Ford has completed the bulk of a restructuring in Europe. (Reporting by David Bailey; Editing by Bernie Woodall and John Wallace)