Renault sees 39 percent drop in 1st half profit

French carmaker Renault stuck to forecast of an increase in global sales Friday in spite of a 39 percent fall in first-half profits driven by higher production expenses.

Europe's car industry is suffering from twin problems of oversupply and a dismal economy. The French government this week announced a plan to prop up the sector — offering incentives to both buy and make environmentally friendly cars.

While Renault is also seeing its profits hit hard, it was still in the black in the January-to-June period, when net profit was €746 million. Sales slipped 1 percent for the first half to €20.9 billion ($25.6 billion).

That performance was enough for investors, who drove the stock up 3.8 percent in early trading on the Paris bourse.

Renault's rival, PSA Peugeot-Citroen, reported a loss of €819 million for the first half earlier on this week.

All of Renault's performance is being driven by sales outside Europe, where the company said it sold a record number of vehicles in the first half. The European market, by contrast, saw a decline of 14.9 percent. It still sells more than half of its vehicles on the continent, however.

The company said Friday that it expects the trend to continue in the second half of the year and become even more pronounced. It now predicts the French market will contract 10 percent to 11 percent, and the rest of Europe will shrink 6 to 7 percent. Both of those estimates are about 3 percentage points lower than previously.

Global demand, by contrast, should rise 5 percent, the company said, and it will focus on rolling out more cars to international markets to capitalize on that.