PSA Peugeot Citroen, Europe’s second-biggest carmaker, reported a 9.8 percent drop in first-half vehicle sales because of slumping demand in its home region and the end of component-kit deliveries to Iran.

The company is counting on demand from China, Argentina and Algeria for the 2008-model crossover and 208 hatchback to lead to better performance in the second six months of the year, Maxime Picat, head of the Peugeot brand, said today at a Paris press conference. First-half group deliveries dropped to 1.46 million cars, sport-utility vehicles and vans from 1.62 million units a year earlier, the company said.

Peugeot is struggling to return to profit as industrywide car sales in Europe shrink a sixth consecutive year. Chief Executive Officer Philippe Varin’s plan for reviving earnings includes expanding in emerging economies and adding premium models including the Citroen brand’s DS line-up, in addition to production cuts at home. The carmaker opened its third assembly plant in China, the world’s biggest auto market, in early July.

“We’re targeting a better second half this year than last,” Picat said. “It will be challenging, but we should be able to do it with the model launches ahead of us.” He reiterated a prediction that the European car market will contract 5 percent this year.

First-half sales dropped 15 percent at the Peugeot brand to 808,000 vehicles and 1.7 percent at the Citroen marque to 653,000 units, Peugeot said today in a statement. Excluding kits of parts ready for assembly into vehicles, a setup the company is dropping because of trade sanctions against Iran, its biggest customer for the technology, sales fell 1.1 percent at the group level and 0.5 percent for the Peugeot nameplate.

Gains Abroad

Vehicle sales outside Europe accounted for 43 percent of Peugeot’s total and 39 percent of Citroen’s, an increase of 8 percentage points at each brand, the divisions said separately.

“In the context of a lastingly depressed European market, the group gained from its model introductions in the first half,” the parent company said. “Almost one vehicle in five is now in the premium segment, confirming the success of the product-line upgrade strategy.”

The carmaker consumed 200 million euros ($257 million) a month in cash last year, a figure that Varin is working to cut by half in 2013 and eliminate by the end of 2014. Peugeot is scheduled to shut a car factory in the Paris suburb of Aulnay next year and will eliminate about 11,200 jobs in France by then, or 17 percent of its workforce in the country.

First-half group sales surged 32 percent in China and 21 percent in Latin America, the manufacturer said. Deliveries fell 13 percent in Europe and 22 percent in Russia.

2008’s Orders

Orders for the 2008, which debuted in May, now exceed 30,000 vehicles, Picat said. Citroen’s model introductions this year include new versions of the C4 Picasso minivan and DS3 compact.

Reorganization measures taken by the carmaker and its Faurecia car-parts unit may lead to negative operational free cash flow of 1.3 billion euros this year, narrower than the manufacturer’s cash-burn forecast of 1.5 billion euros, Stefan Burgstaller, a London-based analyst at Goldman Sachs Group Inc., said in a note to clients almost a week ago. Europe’s economy may be improving, helping revive industrywide car sales, he said.