Automakers in Europe and Japan unveiled weak results for the first half of the year on Thursday and are set to keep tight control over costs but most predict an improvement in conditions for rest of 2009.

Europe's largest car maker Volkswagen said Thursday second quarter profit sank sharply as France's Renault swung into a first half loss but said it would increase production as the outlook had improved.

In Japan automakers, Mazda Motor Corp <7261.T> and Mitsubishi Motors Corp <7211.T>, also posted losses for a third straight quarter but kept their annual forecasts unchanged, relying on cost cuts to offset the weak demand.

Volkswagen's net profit for the three months to June 30 was 283 million euros ($399 million), down 83 percent from the same period a year ago. Operating profit fell 56 percent to 928 million but far exceeded average analyst expectations for 628 million profit.

Renault , which has a 44 percent stake in Japanese carmaker Nissan Motor Co <7201.T>, said its first half net loss was 2.712 billion euros against a net profit for the same period in 2008 of 1.467 billion and forecasts for a 2.36 billion loss.

The DJ Stoxx European Autos index <.SXAP> was up 1.09 percent at 1056 GMT.

MARKET SHRINKAGE SLOWING

Automakers have seen sales crumble in the past 12 months due to global economic downturn and tight credit markets that have already driven U.S. rivals General Motors and Chrysler to bankruptcy and restructuring.

Renault now expects the world automotive market to fall 12 percent in 2009 compared with last year to over 57 million units, an improvement over its earlier forecast of a 15 percent contraction this year.

Automakers are squeezing costs to reduce losses as production capacity remains severely underused, but they mostly foresee an improvement in output on a quarterly basis for the rest of the year as they bring inventory under control.

Renault said it aimed to produce 164,000 more cars than it originally intended this year.

This means Renault can sell 15 percent more cars in the second half than the first half, and can continue the claw back of free cash flow and further reduce debt, said analysts at Morgan Stanley in a research note.

Volkswagen meanwhile reported a surge in free cash flow of 4.3 billion euros during the first half leaving automotive net cash at 12.3 billion by the end of June, a war chest that would enable it to easily buy sports car maker Porsche.

However, Renault, which ranked as about the 10th largest car maker in the world by the end of the first half, still expects Europe's car market to finish the year with an 8 percent decline, after a 13.7 percent fall in the first six months.

Renault itself is showing resilience, Chief Executive Carlos Ghosn said, adding it was preparing for the post-crisis period with zero emission vehicles, expansion of its entry-level range and a move to expand synergies with partner Nissan.

TAX INCENTIVE IMPACT

The group said that despite the effects of incentive schemes to scrap older cars in major European markets, Europe made up half the total revenue decline. Group revenues fell 23.7 percent to 15.99 billion euros in the period.

Governments around the world have introduced stimulus measures to revive the sector which is also racing to reposition itself for more ecologically-minded buyers with hybrid cars and electric vehicles.

Ghosn, who is also CEO of its Japanese alliance partner Nissan, said earlier in July that he expected 2010 to be as difficult as 2009 as the crisis continues.

French carmaker PSA Peugeot-Citroen on Wednesday posted a first-half loss and said it did not see a recovery in Europe starting before the end of 2010 but said it saw good potential from the Chinese and Brazilian markets.

Car parts maker Valeo on Wednesday posted a 54 million euros second-quarter net loss but forecast a rebound in auto production in the third quarter.

TRUCK MARKET DEPRESSED

German truck maker MAN SE said on Thursday it saw no sign of an upturn as it posted a plunge in second-quarter operating earnings in line with market expectations.

Truck makers such as MAN and its Swedish rivals Volvo and Scania have equally been hit hard by plummeting demand over the past year as the economic downturn has run its course.

German peer Daimler Trucks , the world's biggest truck maker, this week reported a 1.1 billion euros deterioration in second-quarter EBIT, swinging to a substantial loss after unit sales fell 56 percent.

Meanwhile German auto parts maker Continental , which faces debt problems after its controlling investor Schaeffler, a family-owned bearings maker, made a hostile bid, also reported on Thursday a Q2 net loss attributable to shareholders of 190 million euros.

($1=95.04 Yen; $1=.7095 euros)

(Additional reporting by Matthias Blamont, Christiaan Hetzner and Niklas Pollard; Writing by Richard Hubbard, Editing by Mike Nesbit)

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