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FRANKFURT, Apr 21 (Reuters) Spiking raw material prices are complicating the automotive sector's efforts to slash costs and defend margins in a ferociously competitive business, and the pressure may get worse.

Squeezing suppliers will help, but wringing out savings on raw materials is a crucial element for enhancing earnings at several car companies.

The market will be scouring next week's first-quarter numbers from Volkswagen, Renault, DaimlerChrysler and Peugeot for clues on their prospects of keeping materials costs under control, through more efficient manufacturing, leaner designs and hedging future purchases.

Volkswagen aims to cut material costs by more than 4 billion euros ($4.94 billion) as part of its programme to nearly triple pretax profit to 5.1 billion euros by 2008.

Renault Chief Executive Carlos Ghosn has made cutting purchasing costs by 14 percent over three years a key component of the French carmaker's drive to achieve a profit margin of 6 percent in 2009.

Research by investment bank Dresdner Kleinwort Wasserstein analysts shows the ratio of materials costs to automotive sales at Volkswagen was 73 percent last year, substantially ahead of the sector average of 65 percent for Europe's volume carmakers.

The analysts said Volkswagen's auto designs have not given sufficient consideration to keeping materials costs low.

BMW recently managed to decrease its material cost ratio to 54.4 percent from 56 percent despite higher raw material costs, they added, while DaimlerChrysler's Mercedes-Benz brand had a ratio of 68 percent.

METALS ON THE MARCH It takes time to reduce material costs, since they can mostly be addressed only when planning and developing new products, the report said.

Prices for base metals are set to stay high as demand from China and other emerging powers bumps up against supply bottlenecks caused by years of underinvestment when commodity prices were low.

Copper, zinc and nickel futures hit record peaks this week on the London Metal Exchange, the world's largest non-ferrous metals market, while aluminium touched 17-1/2 year highs.

''The industry will be terribly affected by the rise in raw material (prices) in the second quarter,'' Thierry Morin, chief executive of French automotive supplier Valeo, told reporters after commodities weighed on first-quarter margins.

Ford Motor Co. Chief Financial Officer Don Leclair also issued a word of warning when his company reported its biggest quarterly loss in more than four years on Friday.

''In the first quarter we did well in Europe and we made progress in total in the material costs area ... but we are putting up a little caution that it is tough out there on the commodities side,'' he said.

He was speaking a day after General Motors Corp, the world's biggest carmaker, acknowledged it would not hit its target of reducing material costs by $1 billion this year because prices were stubbornly higher than forecast.

PRICE HIKES Valeo managed a slight increase in its first-quarter operating margin to 3.3 percent from 3.1 percent despite increased raw material costs.

Morin moaned that spot prices for zinc had risen 71 percent in the first quarter versus a year earlier, while copper advanced 51 percent, aluminium 27 percent and Brent oil 29 percent.

High oil prices make plastics dearer, in addition to simply boosting emergy bills.

Spot steel prices had fallen 5 percent year on year, he pointed out, but analysts expect steel mills to push through more price increases.

European mills do not usually announce prices too far in advance for fear that they will be unable to implement price hikes, steel industry consultancy MEPS said in a recent report.

''But in 2006, European steel mills appear to be confident of securing further upward adjustments in the (third) quarter -- and in some cases even earlier,'' it said.

Rubber prices have also advanced, with Indonesian tyre-grade rubber prices up more than half in the past year amid tight supplies in main producer Thailand, as well as soaring crude oil prices and gains in Tokyo rubber futures.

The DJ Stoxx European car sector index has outperformed the DJ Stoxx 600 by nearly 7 percent this year on hopes that companies would get a firm grip on costs.

But the relative outperformance has come off since early April, with the auto index lagging the broader index by around 2.3 percent this month.

REUTERS PV kp2017