By Madeline Chambers, European Auto Correspondent
FRANKFURT, Aug 20 (Reuters) - The world's two top car companies gave moderately bullish signals about market trends on Wednesday, offering a glimmer of hope that the gloom in the auto sector might gradually lift.
The chief executive of General Motors Corp said he expected the U.S. market to improve in the rest of the year, particularly in the fourth quarter, while Ford said it expected stronger demand in the second half in Europe and that June and July sales had been better than anticipated. Many carmakers have predicted that after a dismal first six months of the year, consumers would start buying cars again in the second half, helped by stronger economic conditions.
But investors are cautious, arguing that sales growth may not feed through to profits.
"A few slightly upbeat comments are trickling through for the rest of the year which is reassuring but remember, in the U.S., carmakers are fighting to make money and things are still very fragile in Europe," said a Frankfurt-based fund manager.
VOLUME NOT PROFIT
GM Chief Executive Rick Wagoner said he anticipated an improvement in the U.S. market in coming months.
"The prospects for the second half of the year are clearly better and the fourth quarter should be strong again," he told a German magazine.
U.S. carmakers have been battling weak demand by using incentives and discounts on vehicles, eating into profits.
Hopes of economic recovery in the United States have boosted sentiment to some extent but auto analysts point out that the sector is structurally warped by incentives.
"The U.S. market is incentive led and if the market does pick up, Nissan and Toyota will be the ones to gain -- they are taking the profit out of the market," said Robert Ashton, an analyst at Commerzbank in London.
Some investors noted that the recent appreciation of the dollar against the euro, if sustained, could help European exports, which could favour German players who are dependent on the U.S. market for over 20 percent of unit sales.
The euro held near its weakest level against the dollar in almost four months on Wednesday as investors bet the United States would benefit from economic recovery earlier than the euro zone.
EUROPE LAGS
Despite some positive data from Germany recently, economic conditions still bode ill for Europe's sagging auto market.
Car sales, however, managed a flat performance in July according to forecaster JD Power LMC, signalling stabilisation after a 2.5 percent drop in the year so far. And Ford Europe, which suffered a second-quarter $525 million pre-tax loss, said the market was showing signs of improvement.
"We are more optimistic than we were two months ago," said a spokesman, adding incoming orders had improved and June and July sales were better than expected. "We think there is a trend."
Ford constantly revises its production schedule to react to demand and a newspaper reported Ford Europe was planning to lift its fourth-quarter output by 40,000 units.
Carmakers are banking on a raft of high-volume new models soon, including Volkswagen's Golf and Opel's Astra, to jump-start demand.
"We have seen product-led rebounds elsewhere in the past, like in France, and we've got some strong models coming out this autumn, so it could stimulate demand," said Commerzbank's Ashton.
However, Europe's biggest automaker VW said last week it did not expect a pick-up in the German auto market, Europe's biggest, until early 2004, later than many industry experts had predicted. French carmakers are also downbeat about the second half.
"The industry still faces challenges. The destocking we were expecting in Europe in the second quarter did not happen," said a German bank in a recent research note, adding that there had been an inventory build-up.
"With no pick-up in registrations, production cuts can still take place which could hammer both makers and suppliers' potential earnings," the bank said.