Aug. 27 (Bloomberg) -- Ford Motor Co. is lobbying European governments to extend consumer sales incentives to avoid a new market collapse when the programs end, according to the U.S. automaker’s top executive in the region.

Ford and the European Automobile Manufacturers’ Association trade group are “asking governments if they would be prepared to maintain scrappage or at the minimum do a slow phase-out,” John Fleming, Ford of Europe’s chief executive officer, said yesterday in an interview at the division’s headquarters in Cologne, Germany.

European car sales rose in June for the first time in 14 months after governments offered incentives to help lift the industry out of its worst crisis since World War II. Dearborn, Michigan-based Ford estimates that Germany’s 5 billion-euro ($7.1 billion) scrapping program, one of Europe’s most successful, will run out of money next month.

The end of support for drivers to trade in old cars for new models “is going to take us back down to much lower numbers,” because the economy probably hasn’t sufficiently recovered, Fleming said. Next year will probably be “difficult,” he added.

The U.S. government’s “cash for clunkers” trade-in program, which offered discounts of as much as $4,500, produced almost 700,000 automobile sales, the Transportation Department said yesterday. The initiative helped restore demand for the slumping auto industry, prompting Ford, General Motors Co. and Chrysler Group LLC to boost production plans in the second half of this year.

Operating Profit

Ford posted a second-quarter operating profit of $138 million in Europe, compared with a $550 million loss in the first quarter, as it slashed vehicle inventories by 30 percent. The automaker, which has renewed its entire lineup since 2006, increased market share in the first half to 8.9 percent from 8.4 percent, making it the second-largest brand in the region after Volkswagen AG, according to data compiled by Brussels- based ACEA.

Ford has reduced production by about 25 percent by cutting about 3,000 temporary employees, canceling shifts and decreasing work hours. If the market continues to fall, it may be more difficult for the company to react, Fleming said.

“We probably don’t have as much flexibility as we had,” he said. “If we need to take another significant step, it will have a more dramatic effect on people.”

Ford is reluctant to reduce the workforce, Fleming said, because the carmaker doesn’t want to impair its ability to respond to a recovery.

Volvo Sale

“At some point, this industry will come back,” said Fleming. “What we’re not sure of exactly is when.”

Ford, which put its Volvo Cars unit up for sale in December, has no plan to keep a stake in the division and is aiming to sell the Swedish automaker by the end of the year, the executive said.

Maintaining a holding in Volvo is “just not something that’s even being considered,” Fleming said. Ford has been unwinding integration with Volvo for more than a year and is in talks with “a number of parties” about a sale, he said, declining to identify them.

Ford is seeking about $2 billion for Gothenburg, Sweden-based Volvo, less than a third of what it paid a decade ago, people with knowledge of the sale said in May.

Chinese automakers Geely Holding Group Co. and Beijing Automotive Industry Holding Co. are among possible bidders, people familiar with the talks have said.

The slump in global auto markets “isn’t putting pressure on us from a timing perspective,” said Fleming. “We’re looking to close it in the last quarter of this year, but that’s very loose.”

Saab, Opel

Volvo’s European auto sales fell 14 percent in June from a year earlier, resulting in a market share in Europe of 1.4 percent, according to ACEA. In the U.S., Volvo had 0.6 percent of the auto market in July.

General Motors is also divesting divisions in Europe. The automaker has agreed to sell Saab Automobile to Koenigsegg Automotive AB, the Swedish maker of $1.2 million sports cars, and is considering bids for Opel including an offer that would have GM retain 35 percent ownership.

To contact the reporter on this story: Chris Reiter in Cologne, Germany at creiter2@bloomberg.net.

Last Updated: August 26, 2009 18:01 EDT