July 16 (Bloomberg) -- European car sales fell 7.9 percent in June on higher fuel prices and a slump in demand spreading north from Spain and Italy. Japanese automakers led the declines.

New car registrations dropped to 1,427,008 from 1,549,574 in June 2007, the Brussels-based European Automobile Manufacturers Association said today in a statement. Sales for the first half of the year slid 2 percent, accelerating the 0.7 percent contraction recorded in the first five months.

``Only France and Germany are holding up the EU market, but even growth in these two regions is beginning to slow,'' London- based Citigroup analysts Kristina Church and John Lawson said in a report to investors.

Carmakers face a squeeze from surging oil prices and other raw materials costs on the one hand and flagging demand for new cars on the other. Consumer confidence sank to a three-year low last month in the 15 countries that share the euro, the European Commission said in June.

``Rising inflation and soaring fuel prices were among the main factors influencing new registrations,'' the European auto- industry body said in its statement.

Toyota Motor Corp., maker of the Avensis sedan and RAV-4 sport utility vehicle, suffered an 18 percent plunge to 68,961 registrations, extending May's 22 percent decline even after introducing its new Auris model in the popular compact hatchback category. Its share of overall sales slipped to 4.8 percent from the 6 percent it achieved last year as a whole.

Asian Brands

``Asian carmakers are just falling off a cliff, because they don't offer as many diesels'' as their European competitors, said London-based Credit Suisse analyst Arndt Ellinghorst.

Japanese models, while known for their relative fuel economy in the U.S., are increasingly coming second in Europe to local brands offered with a broader range of downsized or diesel engines, he said.

Honda Motor Co., Toyota's smaller Japanese rival, fell 22 percent to 23,813 registrations, while Korea's Kia Motors Corp. fell 12 percent to 21,060.

Sales growth all but evaporated in Germany and France, which together had supported Western European registrations in the first five months with respective gains of 4.2 percent and 5.2 percent. Germany, Europe's largest car market, grew just 1 percent to 304,036 registrations in June, while France advanced 1.5 percent to 219,753.

Wolfsburg, Germany-based Volkswagen AG, the region's No.1 carmaker, suffered a 6.1 percent European sales decline to 283,887 cars, led by a 15 percent drop at Seat, the VW brand most exposed to the slump in southern Europe.

`Acid Rain'

Italy's Fiat SpA, another carmaker that had increased market share last year, recorded a 6.3 percent sales drop to 112,038 cars. Fiat's fall was led by a 28 percent plunge for its Alfa Romeo sports cars as the Italian market shrank 20 percent, double its rate of decline in the first five months.

In Spain, where the collapse of the home-building industry is dragging the economy toward a recession, car sales fell 31 percent, compared with a 14 percent decline for January-May. June registrations fell 6.1 percent in the U.K., where rising interest rates and a global credit shortage have also hurt property prices and consumer confidence.

``The acid rain of higher living costs is steadily eroding automakers' top lines,'' said Stephen Pope, chief global strategist at Cantor Fitzgerald in London. ``With input costs higher, that glaringly points to lower net income and lower margins.''

Domestic Sales

Sales by General Motors Corp. -- most of which are under its European Opel brand -- fell 13 percent to 145,947 cars. Crippled by falling domestic sales, the biggest U.S. automaker yesterday announced plans to cut jobs, sell assets and suspend its dividend for the first time since 1922. By contrast, U.S. No. 2 Ford Motor Co. held firm in Europe, with a 0.8 percent gain in June registrations.

PSA Peugeot Citroen, Europe's second-biggest carmaker, fell 9.7 percent to 183,336 registrations, while smaller French rival Renault SA recorded a 5.6 percent decline.

With a 1.7 percent overall sales increase, Bayerische Motoren Werke AG, the world's largest maker of luxury cars, benefited from an 8.3 percent surge in sales of its Mini as fuel-conscious buyers traded down from larger models.

Sales by Daimler AG, whose Smart small car has not proved as popular as its iconic BMW rival, fell 6 percent to 74,405 cars, led by a 6.8 percent decline at the Mercedes luxury brand.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

Last Updated: July 16, 2008 06:08 EDT