Instead of hitting the panic button, European automakers pressed reset on their operations in the region. The restructuring and an improving economy have made some industry executives cautiously optimistic.

Green shoots of recovery are beginning to appear for Europe’s carmakers, despite continued shrinkage in the region’s overall new-car sales.

“The worst is over,” Roelant de Waard, Ford of Europe’s head of sales and marketing told Bloomberg last month. “It’s a bit early to say that we’re now on the way up but the outlook has certainly improved,” de Ward added.

“The emerging economic recovery in western Europe appears to be reflected in the development of car demand,” said Matthias Wissmann, president of the German auto industry association, VDA.

Despite Europe’s five-year car sales slump and the ongoing euro-zone debt crisis, the region’s carmakers have managed to perform exceptionally well. This has been due to factors such as sales success elsewhere, especially in China and the United States, and improvements in production efficiencies.

A recent AlixPartners analysis indicates that European automakers, unlike their U.S. and Asian counterparts, have consistently increased profits over the past 18 years. From 1995 to 1999, European automakers achieved a combined operating profit of $45 billion. By comparison, Asian automakers earned $57 billion and the North Americans had a $71 billion operating profit.

But from 2010 to 2012, European automakers led the world with a combined profit of $116 billion compared with $100 billion for the Asians and $46 billion for the North Americans. Perhaps even more tellingly, European automakers earned more in 2010-2012 than they did from 1995-2004 ($116 billion vs. $112 billion).

Despite the positive financial figures, the immediate outlook for unit sales within Europe remains weak. AlixPartners predicts that western European sales will not recover during this decade, with sales falling to 12 million in 2014, compared with 12.6 million in 2012, and remaining flat until the end of 2019.

The reasons are unemployment, reduced spending power and a lack of consumer confidence. “Flat is the new up,” said Stefano Aversa, co-president of AlixPartners. “The good news is that the decline will stop. The bad news is that it will not get better anytime soon.”

Market analysts at IHS Automotive are slightly more positive. They are predicting sales falling to 12.1 million this year, followed by a slow recovery in the following years and reaching 14.8 million by 2020, still 1.2 million below the 2007 peak of 16 million.

Carlos da Silva, IHS’s forecast manager for European light vehicle sales, also said that car demand has reached a ceiling and the combination of an aging population and a smaller pool of new drivers will result in a “slow de-motorization” in western Europe.

However, there is still a growing sense of confidence within the industry that the bottom has been reached and that automakers’ efforts to rationalize and increase efficiency are paying off. For instance, Ford Motor, which closed a stamping plant and a van factory in the UK this year, said its full year 2013 pre-tax loss for Europe would be about the same as last year, $1.8 billion, compared with its previous forecast of about $2 billion.

“Europe is making very good progress in executing our transformation plan,” Ford Chief Financial Officer Bob Shanks said in a statement in July. The company also said: “While the outlook for the business environment in Europe remains uncertain, data trends suggest that economic and industry conditions may have begun to stabilize.”

It has been a similar story for GM Europe, whose $110 million operating loss in the second quarter was a sharp improvement on its loss of $394 million in the same period last year.

Another positive sign is that gross domestic product in the eurozone rose 0.3 percent in the three months through June, led by expansions in Germany and France, ending a recession that had begun 18 months before. Furthermore, European auto sales grew by 5 percent in July, the second month so far this year in which growth has been seen.

While registrations in the first seven months fell 5 percent to 7.46 million vehicles, the VDA’s Wissmann said sales rates have started to recover, with double-digit gains in austerity-hit Spain, Portugal and Greece a cause for confidence. Stabilization of the European market should enable volume automakers, including Ford, Fiat, General Motors, PSA/Peugeot-Citroen and Renault, to accelerate their plans to return to profitability in the region.

Premium automakers such as Audi, BMW and Mercedes have been hit less by the European recession because they are more global and because they continued to grow their shares of their home market during the downturn. These companies saw their combined market share in Europe improve to 15.4 percent last year from 13.1 percent in 2007.

These automakers also anticipate benefits from a stabilization of the European market, where they are trying to lure more buyers away from volume brands with additional compact models such as the Audi A3 sedan, an upcoming BMW front-wheel-drive family of models and the Mercedes CLA coupe-like and GLA crossover.