"Volkswagen gained market share with its sales down 12 percent"

Car sales in Germany, Europe's last bastion of growth, started to slip last month as the slump deepened elsewhere in the region, including France and Spain, where French group PSA Peugeot Citroen (PEUP.PA) suffered some of the biggest declines.

The hitherto resilient German market, which had helped offset collapsing demand further south, shrank 7 percent last month after April's 3 percent gain, the head of the country's VDIK auto-industry association told Reuters on Friday.

VDIK chief Volker Lange declined to give details of last month's registration figures, which are due to be published on June 4.

"We're seeing the macro-economic unease spreading to German consumers," said Stephen Reitman, a London-based auto analyst with Societe Generale.

"They're highly sensitive to these things - at the slightest sign of trouble the chequebook snaps shut."

Among major automakers, Peugeot led last month's French and Spanish market declines and also gave up market share in Italy, where registrations dropped 14.3 percent overall, according to Italian transport ministry figures published on Friday.

The struggling French car maker saw its domestic sales fall by 29 percent, outpacing that market's 16 percent contraction, while its sales were down 12 percent in Spain, leading an 8.2 percent fall across the industry, according to the Paris-based CCFA industry grouping and its counterpart in Madrid, ANFAC.

Peugeot, heavily exposed to France, Spain and other flagging markets, is selling assets and slashing jobs and investment to stem losses from its core manufacturing division.

The French automaker's registrations tumbled 29 percent in France, where the car market posted a seventh straight monthly decline, as its new flagship Peugeot 208 small car struggled to gain traction.

The 208's 4,872 deliveries, combined with 3,298 registrations of the older 207 model, fell well short of the 9,518 recorded a year earlier by the 207 alone.

Peugeot said deliveries of the 208 were backlogged because more customers are opting for pricier finishes, causing supply problems.

A healthy French order book of 27,000 cars also includes more contracts than expected for a three-cylinder engine version unavailable until July, company spokesman Marc Bocque said.

"Orders are excellent but we're a little behind in translating them into deliveries," he explained.

Peugeot's smaller domestic rival Renault (RENA.PA) posted a 12 percent decline in French sales, while Italy's Fiat (FIA.MI) fell 18 percent.

Meanwhile Volkswagen (VOWG_p.DE) gained market share with its sales down 12 percent. French light vehicle registrations, which combine cars and delivery trucks, fell 17 percent.

Peugeot also lost ground in Spain, where the overall market decline slowed from a 22 percent plunge in April. Combined Spanish sales of Peugeot and Citroen cars fell 12 percent, while General Motors' (GM.N) Opel badge posted a 13 percent drop and Volkswagen's Seat brand plunged 19 percent.

Spanish car sales have halved since 2007, based on first-quarter data, trimming the country's share of Western European registrations to 6.3 percent from 10 percent over the period.

Spain is now "closer to the sales volume of the Netherlands, Belgium or Morocco than that of a major car-making country", ANFAC said on Friday.

That outlook is unlikely to improve anytime soon, according to Credit Suisse analyst Arndt Ellinghorst.

"Anyone who thinks the European market will pick up in the second half should take a cold shower," Ellinghorst said.

"Consumers are worried about keeping their jobs and paying the bills, so they're not really in the mood to buy cars."

Last month's French and German declines were worsened by calendar effects, officials said, as public holidays fell on weekdays instead of weekends a year ago, reducing the number of sales days.

Adjusted for those disparities, car registrations fell a more modest 2.9 percent in France after April's 1.6 decline and were flat in Germany, according the CCFA and VDIK. France's May 6 presidential election run-off vote also disrupted sales.

"May was a pretty bad month, and the elections and holidays weighed heavily," said Francois Roudier, a spokesman for the French industry group. "People didn't buy cars because they had other things to do."

That didn't stop Hyundai Kia's (005380.KS) offensive, which saw French sales jump 26 percent to 5,021 cars - just 40 cars short of Fiat in Europe's second-biggest market. In Spain, the South Korean group's sales surged 29 percent.