News that European car sales rose for a third consecutive month in August kicked off the Frankfurt Motor Show, where automakers are showcasing green technology they hope will transform the industry.

New car registrations advanced 3 percent across Europe last month, the ACEA industry association said on Tuesday, but noted the rally is being fueled by state incentives that could leave the sector with a hangover once they run out.

New car sales in Europe have staged a fragile recovery since June after a 14-month slump but are still down just over 8 percent in the first eight months of the year.

Volkswagen, Europe's biggest carmaker, detected green shoots in the market after a plunge triggered by 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, VW Chief Executive Martin Winterkorn said late on Monday at an event in a huge hall outside Frankfurt where pink champagne was flowing.

But Toyota Motor Corp 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.

Porsche said it was guardedly upbeat about 2010 after sales of its high-powered sports cars dropped nearly a quarter in the year to July, twice as fast as revenue fell. Orders stopped falling in August and September.

BMW 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. He held out hope BMW would make money this year if the drop in vehicle sales could be held to 15 percent or less.

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, too. India reported a seventh straight month of car sales growth in August. In the same month, 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.

Industry watchers are on the lookout at the show for signs of further consolidation following General Motor's decision to sell control of its European unit, Opel, to a group led by Canada's Magna.

As a political storm brewed over 4.5 billion euros in state aid that Germany has promised for the deal, Magna Co-CEO Siegfried Wolf said he expected no problems to arise from a European Union probe.

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

BMW is holding in-depth talks with French carmaker PSA over cooperating on developing and buying parts.

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 a reduced turnout at the show, Opel's new Astra will be one of the main draws among the 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 will be green technologies.

France's Renault is showing four new electric concept cars, while Hyundai Motor Co will unveil 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.

($1=.6833 Euro)

(Additional reporting by Edward Taylor, Jo Winterbottom, Helen Massy-Beresford, Angelika Gruber and Arno Schuetze; writing by Michael Shields; Editing by Jon Loades-Carter)

Germany Russia India Volkswagen