Executives at the Frankfurt Motor Show predicted a bumpy road to a car market recovery as they showcased their latest green technology, which they hope will transform the industry.

News that European car sales advanced 3 percent in August -- the third consecutive monthly gain -- showed markets were finally stabilizing, but top managers said it would take years to get back to the frothy days before the financial crisis hit.

I do not expect that we will return to conditions like in 2007 or early 2008 in the short term. That means we will see a slow recovery in 2010, 2011 and then have better and more stable market conditions in 2013, 2014, said Bernhard Mattes, head of Ford in Germany (F.N).

Korean carmaker Hyundai Motor (005380.KS) was more downbeat.

It won't be until 2015 when the market picks up significantly and we'll see 2007 levels in Europe again, said Allan Rushforth, vice-president of Hyundai Motor Europe, adding Asian markets were expected to recover more quickly.

The August rise in new car registrations in Europe was fueled in part by state incentives that could leave the sector with a hangover once they run out. Consumers are also leery of splashing out while unemployment is on the rise.

European car sales have edged up since June after a 14-month slump but are down over 8 percent in the first eight months.

The chief executive of Volkswagen, Europe's biggest carmaker, whose small cars are getting a special boost from state incentives, saw green shoots in the market after the worst financial upheaval since the Great Depression.

The difficult crisis in the automotive industry is not over yet, but there are increasing signs that the bottom has been reached, Martin Winterkorn said late on Monday at an event in a huge hall outside Frankfurt where pink champagne was flowing.

But Toyota Motor Corp (7203.T) expected industry auto sales in Europe to stagnate or shrink in 2010 as government incentive programs cease to inflate sales, the head of the Japanese automaker's European operations told reporters late on Monday.

Natural demand remained pretty bad, said Toyota Europe President Tadashi Arashima. We're not optimistic at all.

BMW (BMWG.DE) finance chief Friedrich Eichiner said the world's biggest premium carmaker expected a slow improvement in 2010 sales volume if there was a U-shaped economic recovery.

The German company's stand at the sprawling Frankfurt show was so big that it could drive around the new cars on display.

HUNTERS AND PREY

Positive signals in emerging markets are helping. India reported a seventh straight month of car sales growth in August. Russia, which had been tipped to overtake Germany as Europe's largest car market this year until the crisis hit, showed its slowest decline in four months, albeit a 54 percent drop.

Still, the end to state subsidies hangs over the market.

In Germany -- Europe's biggest car market, where August registrations leapt 28 percent -- a scheme that paid drivers 2,500 euros ($3,659) to scrap their old cars and buy new, greener models has now run out, whereas France has promised to keep its scheme going into 2011.

Fiat (FIA.MI) Chairman Luca di Montezemolo said it cannot be taken for granted that Italian incentives to promote car purchases will no longer be available in 2010.

Industry watchers are on the lookout for more consolidation after General Motor's GM.UL decision to sell control of its European unit, Opel, to a group led by Canada's Magna (MGa.TO). The deal is drawing a political storm over 4.5 billion euros in state aid that Germany has promised for the deal.

An agreement between China's BAIC and luxury carmaker Koenigsegg to buy GM unit Saab, and Geely Automotive's (0175.HK) bid for Ford's (F.N) Volvo are other signs of merger activity in an industry plagued by overcapacity.

VW Chairman Ferdinand Piech left open the possibility that Volkswagen, which is in the process of taking over sports car maker Porsche AG, could acquire further brands, saying a dozen is easier to remember than ten.

Porsche will be the tenth brand in VW's stable.

Amid reduced turnout at the show -- Japan's Nissan Motor (7201.T) did not even have a stand -- Opel's new Astra was one of the main draws among cars being unveiled for the first time.

As carmakers get ready to meet tough new targets to cut emissions from their fleets, however, the real stars of the show were those boasting green credentials.

France's Renault is showing four new electric concept cars, while Hyundai Motor Co (005380.KS) unveils its ix Metro hybrid concept car and its i10 electric car.

While in the past people looked for horsepower and the number of cylinders to measure a car, people are now looking at fuel consumption and CO2 emissions, VW's Winterkorn said while showing the E-Up electric car that could hit the road by 2013.

VW showed a concept car that sips 1.38 liters of diesel to go 100 km, the equivalent of getting 170 miles per U.S. gallon.

($1=.6833 Euro)

(Additional reporting by Christiaan Hetzner, Edward Taylor, Helen Massy-Beresford, Angelika Gruber and Stefano Rebaudo; writing by Michael Shields; Editing by Jon Loades-Carter)

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