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UPDATE 1-W Europe car sales drop in April, Asian firms win

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By Madeline Chambers

FRANKFURT, May 15 (Reuters) - Sliding auto sales in western Europe last month compounded the woes of the region's carmakers, already hit by unfavourable exchange rates and struggling to lift profits this year as their Asian rivals gain ground.

Brussels-based automakers association ACEA said on Thursday car registrations in western Europe fell 6.5 percent in April from a year ago, bringing sales for the first four months of the year to 5.02 million, down 3.4 percent on the year.

All European carmakers had lower sales, while Japanese and Korean competitors gained. Among the hardest hit European firms were Italy's Fiat and Volkswagen , whose market shares dropped 13 and 11 percent respectively, though VW is still market leader with 18 percent.

By contrast Japan's Mazda and Korea's Kia were the biggest gainers with sales jumping nearly 57 percent and 70 percent respectively, though Toyota is still the biggest Japanese player with a 4.6 percent share. Kia's gains were from a low base as it took 0.9 percent of the market -- the same as Britain's MG Rover.

The ACEA data caps a weak earnings season for European carmakers, many of whom expect no profit growth this year, though the association said some special factors exaggerated the market's weakness.

EURO STRENGTH

"Two main factors explain this drop: the effects of the military operations in Iraq on the overall economic environment and the fact that the Easter holiday fell in the month of April this year and in March in 2002, making comparisons difficult," said ACEA in a statement.

Companies face declining demand at home just as the strength of the euro makes exports less profitable. This week investment bank Goldman Sachs cut its rating on the sector on currency worries.

European auto stocks fell across the board in early trade and lagged the European market as a whole.

"The combination of weak demand at home and currency affecting revenues from abroad is a worry for European carmakers, especially the Germans who export to the U.S.," said one London-based auto analyst.

Demand in the U.S., the most important export market for German carmakers, fell 6.2 percent in April.

The only European brands to notch up sales gains were Citroen, owned by PSA-Peugeot-Citroen , BMW's Mini and DaimlerChrysler's Smart, none of which are profit drivers for their parent companies.

"VW is particularly disappointing and the month-to-month trend is deteriorating," said Juergen Pieper, auto analyst at Metzler Bank in Frankfurt. "I would expect that pattern to continue at least until they bring out the new Golf in the autumn."

Japanese and Korean carmakers, helped by exchange rates which make European imports cheaper, continued to add market share and most brands saw higher sales in April.

Stylish new models at competitive prices and improved dealer networks have helped boost Japanese and Korean car sales which together account for about 15 percent of the European market.

Some European carmakers worry their Asian rivals will mimic their success in north America, where they are threatening the "Big Three" U.S. carmakers' grip on the market.

A weak economy and subdued consumer sentiment are hurting European auto sales and most analysts predict a drop of two percent or more for the year. (For a full table of Western European sales in April, click on [nL14567317])