FRANKFURT -- Mass-market car makers head into the Paris auto show, which opens to the press today, grasping for the spark that could ignite tepid sales growth and boost profits in a sector showing serious signs of fatigue.

With global manufacturing capacity exceeding demand by a quarter and prices under constant pressure, many car makers have settled into a beggar-thy-rival approach that hinges on pumping out new models and winning market share at practically any cost.

That has led to ferocious competition, dwindling profit margins, intense pressure to cut labour costs and stock market valuations that by no means reflect the fact that the sector accounts for a tenth of wealthy countries' economic output.

"The industry is facing perhaps 10 years of difficulties and it needs to do something different than what Volkswagen, for example, is doing at Wolfsburg by simply cutting the cost of labour. That is not going to solve the problem," said Graeme Maxton, managing director of consultancy Autopolis.

"They squeeze their suppliers to death. They crush the dealers to make sure that they are almost at the brink of bankruptcy and then they go and give 1,400-euro or $5,000 incentives to sell cars. Something is wrong with the model."

Underscoring the sector's tough times, British luxury car maker Jaguar announced plans last week to cut 1,150 jobs and consolidate output as a way to remove excess capacity.

Credit Suisse First Boston downgraded the European auto sector to "underweight" from "market weight."

"With slowing production and rising raw materials costs, we would avoid suppliers and tires altogether, as well as low-margin [auto makers]," the bank said, adding that car makers' second-quarter earnings may have been the peak for 2004.

But sparkling new cars rather than sweeping structural changes are on the agenda for Paris as auto makers roll out fresh models in an effort to lure wary customers into showrooms.

Some 60 new models will appear, with the spotlight on the mass-market "C" segment that is crucial for European sales.

The new Ford Focus will vie for attention with the Citroen C4, Opel Astra GTC from General Motors' European division, Volkswagen Golf V GTI and DaimlerChrysler's revamped A-class car.

Premium car maker BMW's new 1 Series car -- its smallest so far -- is also encroaching on the sector, as is VW luxury unit Audi's A3 Sportback.

Ironically, the range of new cars is weighing on profits by limiting the sales potential of individual models, thus eroding the economy of scale that large production runs bring.

Speed freaks will get their standard dose of high-powered cars in Paris, while DaimlerChrysler will show off its Mercedes "vision B" concept car, a 5-seat sport wagon and its "vision R" grand sports wagon with three rows of seats.

France's Renault and PSA Peugeot Citroen, two of Europe's most successful mass-car makers, will promote super-mini cars on their home turf, while Renault presents the cut-price Logan for emerging markets with a 5,000-euro ($7,800) price tag.

The question is whether the plethora of new models will help sales, which analysts say may rise by only about 1 per cent this year in Europe amid weakness in key markets Germany and France.

That has prompted Fiat, Ford's Jaguar, Opel and Volkswagen to curb production of at least some models this year, raising questions about where growth will arise.

U.S. sales have also faltered of late despite generous incentives, prompting GM and Ford to cut production plans.

China remains the fastest-growing market, but car makers' profits there are sliding as Beijing taps the brakes on an overheating economy. Billions of dollars pouring into new plants raise fears of a margin-sapping glut that could spill over into an export threat before the end of the decade.

European and U.S. car makers will be looking over their shoulders at Japanese and Korean rivals whose robust offerings are seizing market share in Europe thanks to their world-class quality, sharp designs and popular diesel engines.

Toyota became the world's No. 2 car maker by offering well-made, fuel-efficient cars -- a recipe that Korean manufacturers like Hyundai are copying successfully.