German motor industry association VDA on Monday kept to its forecast of roughly flat car sales in Europe's biggest car market this year, pinning its hopes on a recovery in demand in the second half, Reuters reported.

The news agency said the association expects about 3.25 million new car registrations in Germany in 2003, broadly stable compared with last year, despite a fall of 1% in the first five months of the year. VDA, which tends to be more optimistic in its forecasts than individual manufacturers and other industry experts, also forecast domestic production of five million vehicles this year and exports of 3.55 million cars, Reuters noted, adding that weak economic conditions and subdued consumer sentiment in Germany have hit car sales in the last couple of years but there are signs that the domestic market is at last bottoming out.

"The (auto) market follows sentiment and this is still subdued and characterised by caution," VDA President Bernd Gottschalk reportedly told a news conference. "But there are attractive models available, interest rates have fallen, planned tax hikes have been cancelled, there is money available as seen from the high level of savings.We have a good chance of reaching our targets," he reportedly said, according to Reuters.

So far this year, Ford and Fiat have lost most market share in Germany while PSA-Peugeot Citroen and Renault have gained most, the Reuters report said.

Reuters noted that German car makers have in recent years earned between 20 and 60% of their profits from exports to the United States, but are now facing pressure there from the strength of the euro against the dollar, which makes exports more expensive.

According to Reuters, Gottschalk said he expected US demand to fall to about 16 million vehicles this year, against 16.8 million in 2002.

Reuters also noted that German car makers are suffering from a strike in some eastern German states over the length of the working week which threatens to halt output of some important models. The action has hit companies in eastern Germany which supply, among others, BMW, which has stopped production of 3-series cars at Munich and Regensburg, and VW which has said production of the Golf and Lupo will be hit.

Reuters said VDA, which criticised the industrial action, said production of 1,370 vehicles per day in eastern Germany was lost due to the strikes and 1,800 vehicles in western Germany.