Toshiyuki Shiga, chief operating officer of Nissan Motor Co., demonstrates charging the company’s prototype electric vehicle at the Oppama test course in Yokosuka, south of Tokyo, Japan on July 27

Automakers may be getting past the worst of the slump after PSA Peugeot Citroen said it generated cash in the first half and Honda Motor Co. and Nissan Motor Co. posted better-than-expected results.

France and Japan are among countries offering consumers a mix of credits, tax breaks and subsidies to get consumers to trade in old cars for newer, more fuel-efficient models. The policies are stemming the plunge in auto demand that helped push General Motors Corp. and Chrysler LLC into bankruptcy.

“It will be a very bad year, but it’s getting better,” said Edwin Merner, who helps manage about $3 billion at Atlantis Investment Research in Tokyo. “The general consensus is that things will start to look a lot better from October.”

Paris-based Peugeot, Europe’s second-largest carmaker, rose as much as 9.5 percent to 20.15 euros in the French capital, the biggest gain since June 1. The stock has added 66 percent this year, valuing the company at 4.71 billion euros.

Honda advanced 1.1 percent to 2,770 yen at the 3 p.m. close of trading on the Tokyo Stock Exchange. The automaker has gained 45 percent this year. Nissan rose 0.8 percent to 631 yen, bringing gains to 97 percent. The companies are Japan’s second- and third-largest carmakers, after Toyota Motor Co.

‘Fears eased’

Peugeot’s “surprisingly strong cash performance will ease fears over a rights issue,” said David Arnold, an analyst at Credit Suisse in London who rates the stock “outperform.”

The French company and European rivals have closed plants temporarily as they struggled to reverse a buildup of unsold cars. Chief Executive Officer Philippe Varin, who took over from Christian Streiff in March, is pressing ahead with measures to shorten vehicle development times and trim costs while seeking new partnerships and alliances to expand into emerging markets.

Peugeot had a net loss of 962 million euros in the half, compared with a 733-million-euro profit a year earlier, and revenue fell 22 percent to 23.5 billion euros. The company expects a full-year operating loss of 1 billion euros to 2 billion euros and a negative cash flow for the 12 months, it said in a statement.

Honda raised its full-year earnings forecast by 38 percent to 55 billion yen for the year ending March. Nissan kept its full-year forecast unchanged at a loss of 170 billion yen.

Sales recovery

President Takanobu Ito, 55, expects sales to recover in the second half and is raising funds in anticipation of an increased demand for car loans. A “cash-for-clunkers” program in the US, which gives consumers as much as $4,500 for trading in an old car, may spark 250,000 new car sales, lawmakers have said.

Japan has implemented tax cuts and subsidies on some fuel-efficient cars to spur auto sales. Consumers can apply for a 250,000 yen subsidy if they scrap a car more than 13 years old to buy a new one and 100,000 yen for a new car purchase without scrapping an old one.

Nissan Chief Executive Officer Carlos Ghosn, 55, is slashing 20,000 jobs this year as the company expects global vehicle sales to slide 9.7 percent to 3.08 million vehicles. The value of Nissan’s overseas sales last quarter was also hurt by the yen’s 7 percent gain against the dollar.

Still cautious

“2009 continues to be a tough year,” Ghosn, who is also head of Renault SA, France’s second-biggest carmaker, said in a statement. “We remain cautious in our outlook.”

Nissan’s first-quarter global vehicle sales fell 23 percent to 723,000. Sales in Japan dropped 22 percent to 116,000 vehicles. In contrast, Honda’s domestic sales were unchanged at 128,000 vehicles. At Peugeot, car and light-truck sales dropped 14 percent to 1.59 million vehicles in the first half.

Honda raised its global vehicle sales forecast for the year to 3.295 million units from a previous estimate of 3.21 million vehicles on stronger-thanexpected demand in its home market. In Japan, the company introduced its Insight hybrid in February, which helped boost domestic sales by 5.7 percent in June.

“Honda has scope to raise its profit forecast further,” said Yasuaki Iwamoto, an auto analyst at Okasan Securities Co. in Tokyo. “Government incentives are helping.”

China, set to overtake the US as the No. 1 vehicle market this year, was a bright spot for both Japanese manufacturers.

Honda’s first-quarter sales in China jumped 21 percent and Nissan’s rose 9.3 percent. With its partner, Dongfeng Motor Group Co., China’s third-largest carmaker, Nissan will expand capacity in the country to 600,000 vehicles from 360,000, buoyed by 5 billion yuan ($732 million) of investment.

“With the stimulus measures, the demand outlook is improving from what it was three months ago,” said Mamoru Kato, an analyst at Tokai Tokyo Research Center in Nagoya.

Source: Bloomberg