PARIS - French tire manufacturer Michelin SA said it still aims to generate positive free cash flow in the second half as third-quarter sales fell 10.9 percent, narrowly beating forecasts.

The company, which competes with Germany's Continental AG and Japan's Bridgestone Corp, said unit sales were down 14 percent in the third quarter and 20.1 percent in the first nine months of 2009 as global tire markets declined.

Scrappage schemes introduced by governments to boost demand for cars should help sales in the fourth quarter, while the end of destocking by dealers would also have a positive impact, it said in a statement on Monday.

Michelin said it expects market conditions to vary according to business segment and region in the final quarter. Passenger car and light truck tire sales should benefit from higher winter demand as well as the government subsidies introduced in major markets to help flagging car sales.

Truck tire demand has bottomed out, but at very low levels, the company said. In the replacement segment, the trucking market is still hesitant, but dealers and fleets are no longer drawing down inventory, Michelin said.

Managing partner Jean-Dominique Senard told a conference call for analysts that destocking is coming to an end in the heavy goods tire market.

Senard said visibility for the rest of the year and 2010 is still very low, but added that the group is positively cautious.

Michelin said it expects improved profitability in the second half compared with the first thanks to a positive impact from raw material prices, leading to 550 million euros of savings at constant exchange rates. It expects a further reduction in inventory and said it still expects capital expenditure at 700 million euros for this year.

Third-quarter sales totalled 3.754 billion euros. Six analysts polled by Reuters journalists had expected an average of 3.727 billion. Nine-month sales were down 12.5 percent at 10.888 billion.

A senior Michelin executive said earlier this month that demand for car and light vehicle tires in Europe and the United States was improving thanks to restocking, but there were no signs yet of an upturn in the truck tire market. (Reporting by Helen Massy-Beresford and Gilles Guillaume; editing by John Stonestreet)