Europe’s top two carmakers bucked the prevailing car market gloom yesterday with better than expected second-quarter results.

Volkswagen, Europe’s largest automotive company and the world’s fourth-largest, and Peugeot Citroën, its French rival, delivered strong performances.

Fiat also performed well, but the position of General Motors (GM) as the biggest carmaker continued to weaken as its global sales for the first half of the year trailed those of Toyota. Last year GM stayed at the top of the world rankings for car manufacturers, above Toyota, by a very narrow margin. The positions are expected to switch by the end of this year.

VW’s second-quarter operating profits climbed 22 per cent to €2.12 billion (£1.67 billion), ahead of analysts’ average expectations of €1.8 billion. The German carmaker, which has been cutting production costs and improving productivity, said that full-year profits would beat last year’s but did not set out definite targets.

Martin Winterkorn, the chief executive of VW, said: “The operating environment has become tougher and is demanding considerable efforts from the automotive industry. This does not make it easy for us.”

VW’s results come as Porsche is positioning to take over its German rival. The sports car manufacturer has a 31 per cent majority stake in VW and intends to increase its holding. Porsche won permission yesterday from the European Commission to take control of VW. Mr Winterkorn said: “The Commission’s examination of the transaction showed that horizontal overlaps between Volkswagen and Porsche are limited.”

Peugeot surprised the market by maintaining its margins targets when analysts had been expecting it to trim them. The French group’s operating income rose 32 per cent to €1.15 billion after a sharp round of cost-cutting.

Peugeot has reduced capacity and shed 10,000 jobs since June 2007 in moves that have produced more than €880 million in savings, it said. It repeated warnings that the European market would fall by about 4 per cent this year and that the second half of the year would be tougher than the first. Its margin target will remain at 5.5 per cent to 6 per cent for 2010.

Fiat, which has also cut production at some of its plants, reported a 19.6 per cent jump in second-quarter profits to €1.13 billion.

Analysts fear that the impact of the weaker European and American markets will hit carmakers later in the year. Manufacturers are also being squeezed by a rise in raw material costs. Peugeot said that its costs would be €300 million to €350 million higher this year compared with 2007. Demand for so called gas guzzling 4X4s fell by 18.3 per cent in May according to the Society of Motor Maunfacturers and Traders.

GM, which set out a radical restructuring plan this month, said that total vehicle sales had fallen 5 per cent in the first half of the year to 4.54 million. Toyota, however, improved its sales by 2.2 per cent to 4.8 million. GM, like its big American rival Ford, has been badly hit by a slowdown in the market in the United States.

Both GM and Ford have announced thousands of job cuts among administrative and managerial posts. Chrysler, the US’s third biggest carmaker, is to cut 1,000 jobs among its salaried staff. The company, which is owned by the private equity group Cerberus, told employees of the cuts in a letter.

Insolvencies in the automotive industry in Britain rose 31 per cent during the second quarter of this year compared with the same period last year. Experian, the global information services company, said that 72 automotive businesses, largely second and third-tier suppliers, had failed during April, May and June.

Shifting power

22% Increase in Volkswagen's second-quarter operating profits

32% Increase in Peugeot Citroën's operating income

4.54m General Motors' first-half vehicle sales

4.8m Toyota's first-half vehicle sales

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