Auto stocks hit record as ECB plan brightens outlook for car finance

* 70 pct of cars bought on credit -Citi

* Weaker euro, cheap oil also helps sector -investors

* Sector at record high, cheap relative to history

* Renault Nissan upgraded market forecasts after ECB

By Lionel Laurent and Atul Prakash

LONDON, Jan 23 (Reuters) - Shares (Frankfurt: DI6.F - news) in European carmakers powered to record highs on Friday as investors bet the European Central Bank's trillion-euro bond-buying plan would drive down the cost of car financing as well as boost eurozone companies' exports.

Some 70 percent of cars in developed markets are bought on credit, according to analysts at Citi, so the ECB's plan to revive the eurozone economy has the potential to drive demand by lowering borrowing costs.

While it is not clear how successful the ECB's action will be in feeding through to the broader economy, several investors said the plan, plus the low oil price, had improved market conditions for manufacturers like Volkswagen (Other OTC: VLKAF - news) and Renault (Swiss: RNO.SW - news) .

"European carmakers now have not only the weak euro, not only the weak oil price, they also have the low interest-rate level," Ingo Speich, portfolio manager at Union Investment in Frankfurt, said.

The STOXX Europe autos and auto parts index hit a record high on Friday. Year-to-date it has risen over 14 percent, the best-performing sector in Europe, adding some $68 billion in total market capitalisation.

Citi analysts said the index was also cheap, in terms of price-to-earnings ratios, relative to its five-year history.

Consensus analysts' forecasts expect the car industry's earnings per share to grow by around 15 percent this year, higher than the European average.

"The whole exercise of the ECB is for credit to be extended in the economy, not just by banks but also by non-banking units (such as carmakers)," Manish Singh, head of investment services at Crossbridge Capital, said. "I am long Volkswagen and keeping that position."

The European car market is in recovery mode but is still marked by intense price competition, according to IHS (NYSE: IHS - news) analyst Tim Urquhart, who said there was not a lot of wiggle room left for cheaper credit to spur demand.

European Union passenger car sales returned to growth last year after six consecutive years of declines.

Christian Ludwig, analyst at Bankhaus Lampe, said the potential benefit to auto-financing was unlikely to be a major growth boost.

But the car companies themselves are optimistic.

Renault Nissan Chief Executive Carlos Ghosn upgraded his European car market growth forecast in the wake of the ECB's announcement.

"The (autos sector) is part-financial, part-overseas earner," Citi analysts wrote in a note to clients, listing the potential benefits of the ECB measures as higher economic growth, further euro weakness and asset-price inflation.

"European autos are likely to benefit from all (these)... trends." (Additional reporting by Blaise Robinson in Paris and Francesco Canepa in London. Editing by Jane Merriman)