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VW, Peugeot post Q1 slump; overhaul in focus

German carmaker Volkswagen posted a 76% drop in first-quarter operating profit and French PSA Peugeot Citroen said sales slumped, as consolidation of the crisis-hit sector remained in focus.

Daimler chief executive Dieter Zetsche told German magazine Capital there was a greater than 50% chance the carmaker would sell its remaining stake in Chrysler this year.

US financial investor Cerberus, the majority owner of Chrysler, has no interest in taking a stake in General Motors' Opel business, a source close to the situation told Reuters on Wednesday.

Volkswagen shares were flat after Europe's biggest carmaker was able to post operating profit of €312 million ($403 million), thanks to a €600 million contribution from the sale of its Brazilian heavy truck business to MAN.

The group said 2009 revenue would fall because of the decline in volume sales but net liquidity in its automotive division rose to €10.7 billion as of the end of March.

PSA Peugeot Citroen shares underperformed the market, as the group posted a 25% drop in first-quarter revenues to €11.0 billion, and confirmed it still expected a loss and negative free cash flow in 2009.

Finance director Isabel Marey-Semper told analysts the fourth quarter of 2009 would be “very difficult.”

Although incentives to scrap cars in some European countries - especially France and Germany - had a positive impact on sales, “the overall outlook remains volatile, with limited visibility at this stage,” Peugeot said.

Natixis Securities analyst Georges Dieng said: “The question is really how the scrapping schemes in European countries are going to finish. The market will adjust at that moment either up or down, and that will affect how it evolves in 2010.”

As results season for Europe's carmakers got under way - full results publications are expected from Italian Fiat on Thursday and Swedish Volvo on Friday - consolidation of the beleaguered sector remained in focus.

GM is aiming to find an outside investor for its German Opel unit, which is being spun off into a separate unit with British Vauxhall Motors. Opel is seeking €3.3 billion in state loan guarantees to ensure its survival.

In a further sign of the sector's woes, Volvo announced it would cut more than 1,500 jobs. Volkswagen's premium brand Audi said on Wednesday it would postpone any decision to build vehicles in the United States as it pledged to invest around €300 million in the Seat plant in Martorell, Spain, where it plans to begin building the Q3 compact sport utility vehicle in 2011.

In Asia, China's ministry of commerce said it would expand a subsidy scheme to encourage the replacement of old cars and buses. (Reuters)