Europe's car market grows in September from record low levels

FRANKFURT (Reuters) - A surge in UK auto sales and an extra working day boosted Europe's new car market in September, providing fresh evidence that demand is slowly bottoming out after plumbing lows not seen in over 20 years.

Automotive industry association ACEA said on Wednesday that new car registrations in Europe climbed 5.5 percent to 1.19 million vehicles in September, only the third month a gain was recorded in the past two years.

But within the European Union, the level of demand was the second lowest on record for the month of September since it began tabulating results for the 27 member states in 2003.

Industry watchers have been waiting to see if last month would reveal that the decline in August was merely a blip or a signal of further problems to come, after the EU car market crashed to the lowest level for the first eight months of a year since records began in 1990.

"The worst is behind us. The decline in sales has considerably slowed and we are now witnessing signs of recovery in demand," said Peter Fuss, Senior Advisory Partner at Ernst & Young's Global Automotive Centre.

"The sales, however, continue to be artificially boosted by huge discounts and self-registrations by dealers," he added, warning it would take at least two years before the market was strong enough to grow on its own without the aid of incentives.

In a sign of recovery on the ailing euro zone periphery, car demand in Greece, Ireland and Portugal - which all accepted bailouts during the crisis - jumped by double-digit rates.

"The western European auto market continued on its course to recovery in September," said the German auto industry association VDA.

For the first nine months, the ACEA said registrations in Europe still fell 4 percent to 9.33 million new cars on the back of weak demand in Germany, Italy and France but also in the Netherlands, where sales have plummeted 29 percent year-to-date.

September volumes are a better gauge of underlying trends in demand than August, since the latter's results are artificially depressed given many European car buyers are on holiday.

It is also a crucial time for the UK market, since it accounts for about 18 percent of annual volumes. Sales grew by 12 percent to over 400,000 vehicles in September, the sixth month in a row where they expanded at a double digit rate.

The biggest winner in September was Renault (PAR:RNO), which increased sales 17 percent at its flagship brand while its low-cost Romanian badge Dacia saw volumes leap by 40 percent.

Germany's Daimler (GER:DAI) posted a strong month as well, with sales of its Mercedes-Benz luxury brand increasing nearly 14 percent after the French government was forced to end its sales ban of certain vehicles.

Volvo (GEELY.UL) reported a surprisingly strong gain of 13 percent to help its otherwise weak performance so far this year, while brands heavily dependent on the dismal Italian market like Fiat's (MIL:F) Lancia and Alfa Romeo brands continued to see volumes fall at a double-digit rate.

Japanese carmakers Toyota , Mazda , Suzuki and Mitsubishi (TYO:7211) also all managed to grow volumes last month, helped by a soft yen, new smaller diesel engines in their line-up and new models tailored to European tastes.

(Reporting by Christiaan Hetzner; Editing by David Cowell)