UPDATE 1-German car production to be flat in 03-VDA

(Adds detail on exports, production, background)

FRANKFURT, Jan 30 (Reuters) - Over two thirds of cars built in Germany last year found homes abroad, helping carmakers offset stagnant domestic demand, but they face another tough ride in 2003, the VDA industry group said on Thursday.

The association confirmed at its annual news conference that it expected 3.25 million new car registrations in Germany in 2003, broadly the same level as last year.

"If the uncertainty decreases and a lengthy conflict (in Iraq) can be avoided, then a result slightly above 3.25 million could be possible," VDA President Bernd Gottschalk said.

Gottschalk told Reuters in an interview in December flat demand at home and a contraction in the world's biggest auto market, the United States, would mean another difficult year for German carmakers in 2003.

He said on Thursday he expected German manufacturers nonetheless to produce more than five million cars for the sixth year in a row this year, after churning out 5.1 million in 2002.

Exports shrank slightly in 2002 to 3.62 million vehicles, although that still made it the second-best year in the industry's history, and Gottschalk said he thought an export volume of 3.55 million vehicles would be "achievable" this year.

Over 70 percent of cars produced in Germany last year went to the export market, compared with just over 50 percent around a decade ago, the VDA said.

The United States remains the most important market outside Europe for German carmakers, but their Chinese market share is also expanding rapidly, reaching 45 percent in 2002.