May 14 (Bloomberg) -- European car sales dropped 12 percent in April as government-backed incentives exacerbated a slump in demand for BMW, Daimler AG and Toyota Motor Corp. models.

New car registrations fell to 1.25 million from 1.43 million a year earlier, a 12th consecutive monthly decline, the Brussels-based European Automobile Manufacturers’ Association said in a statement today. Sales for the first four months of the year were down 16 percent at 4.69 million vehicles.

Widespread state-funded sales subsidies and environmental incentives have shifted Europe’s shrinking demand toward smaller and more fuel-efficient models. Global No.1 luxury carmaker Bayerische Motoren Werke AG’s registrations dropped by almost one-third to 55,633 even as the German market expanded 19 percent, helped by the government’s 2,500 euro ($3,400) sales bonus -- the most generous on offer in Europe.

Daimler recorded a 26 percent sales decline to 60,214 cars, led by its Mercedes luxury brand. Japan’s Toyota, the world’s biggest carmaker, fell 22 percent to 57,774 cars.

Spain extended its auto-sales slump with a 46 percent plunge in registrations, the largest among the continent’s main markets, while U.K. sales dropped 24 percent. Eastern European registrations dropped 21 percent, almost twice the rate of decline in the west, as Romanian demand fell by more than half.

Volkswagen AG, Europe’s biggest carmaker, resisted the overall decline because of demand for its updated Golf compact, posting a drop of 4.2 percent to 284,607 registrations.

Italy’s Fiat SpA also bucked the downward trend with a 4.7 percent sales gain to 121,671 cars, as soaring demand for small cars buoyed sales of the retro-styled Fiat 500. South Korea’s Hyundai Motor Co. increased sales by 10 percent to 27,454 cars.

Paris-based PSA Peugeot Citroen, Europe’s No.2 carmaker, posted a 15 percent decline to 156,726 registrations, weighed down by a 19 percent slump at its main Peugeot brand. Sales by smaller domestic rival Renault SA dropped 14 percent as its namesake brand plunged 24 percent.

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

Last Updated: May 14, 2009 02:00 EDT