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By Madeline Chambers
FRANKFURT, Jan 15 (Reuters) - New car sales in western Europe slipped 1.3 percent last year after a sharp drop in December caused by weak demand in Italy, data published on Thursday showed, leaving investors hoping for a stronger 2004.
Japanese and Korean carmakers continued their assault on domestic players in December, ending the year with jumps in both overall sales and market share, while Italy's Fiat and France's PSA Peugeot-Citroen fared worst.
Brussels-based carmaker association ACEA said auto sales in western Europe fell 1.8 percent in December from a year ago, bringing the total number of cars sold last year to 14.22 million, a 1.3 drop from the previous year.
The auto industry, which accounts for about four percent of the European Union's gross domestic product, reflects wider economic conditions and consumer sentiment, which are pointing to a modest recovery this year unless undermined by a strong euro, which makes exports more expensive.
European auto stocks opened mostly lower but roughly in line with the broader market .
Most industry experts forecast a roughly two percent rise in the region's auto demand this year, and ACEA noted last month's figures indicated a "progressive recovery" in most countries.
"We think this year will be better than last year, but it depends on the economic recovery," said an ACEA spokesman.
December's drop was due largely to abnormally strong results in December 2002 in Italy, as consumers rushed to buy before the withdrawal of government incentives at the end of that year, said ACEA.
European manufacturers are in the midst of launching an unprecedented number of new models, including the Volkswagen Golf and Opel Astra, which they hope will lure buyers back into showrooms.
QUANTITY VS QUALITY
But investors worry that higher sales volumes will not necessarily translate into profit growth as pricing pressure and unfavourable exchange rates continue to take their toll.
"We expect the competitive landscape to intensify further in 2004 as Japanese and Korean (manufacturers) target higher market share," Goldman Sachs said in recent research.
Based on their economists' forecast of 2.6 percent real GDP growth in Euroland in 2004, the bank predicts an improvement in European unit sales of 2.5 percent.
"However, with pricing likely to remain weak and at current exchange rates, we believe any benefit from higher European volumes will be outweighed by currency," it continued.
Europe's biggest carmaker Volkswagen gained some ground last month as it launched its new Golf hatchback, but not enough to prevent a drop in sales and market position for the year overall.
The BMW and DaimlerChrysler brands also performed well in December.