By Laurence Frost and Gilles Guillaume

PARIS (Reuters) - French car sales fell 15 percent to their lowest January level in 16 years, as Volkswagen and U.S. carmakers led declines, leaving no end in sight to Europe's autos slump.

Registrations in France fell to 124,952 cars last month from 147,046 a year earlier, Paris-based auto industry association CCFA said on Friday.

That was the lowest January total since the 122,320 recorded at the beginning of 1997, as austerity-squeezed household budgets mean consumers are holding back on big purchases.

The data "confirmed rumors that the French passenger car market started 2013 on as weak a note as it exited 2012," London-based Credit Suisse analyst David Arnold said.

Ongoing declines across Europe suggest carmakers will have to cut output by a further 7 percent this year, Arnold said in a note - adding to the excess production capacity that is already racking up deep losses for most volume brands.

Dented by the region's debt crisis, austerity and rising unemployment, European auto sales are at a 17-year low and still falling.

Renault and Japanese affiliate Nissan <7201.T> are not counting on any European recovery within the next three to four years, Carlos Ghosn, chief executive of both, said this week.

Renault's French car sales fell 7.4 percent in January, holding up better than the market thanks to a 9.9 percent gain for its low-cost Dacia brand, as consumers opted for "crisis cars" such as the no-frills Sandero compact and the Duster sports utility vehicle (SUV).

Struggling domestic rival PSA Peugeot Citroen , which is cutting 8,000 French jobs in a bid to restore profitability in 2015, saw sales plunge a further 16.7 percent at home last month.

Without the benefit of the recently released Renault Clio and Peugeot 208 small car - Europe's December bestseller in its category - the numbers would have been worse for the French.

January's decline was compounded by destocking in December, when automakers used heavy discounts to clear inventory of unsold cars by the end of the year, CCFA spokesman Francois Roudier said.

"But demand is still very weak for small and medium-sized cars and minivans," Roudier said.

French sales by the Volkswagen group, Europe's biggest carmaker, plunged 23.9 percent to 16,846 cars - with the decline accentuated by the comparison with January 2012, an exceptionally strong month for the German giant.

Combined French registrations by General Motors' Chevrolet and Opel/Vauxhall brands dropped 21.2 percent, and Ford sales fell 35.3 percent.

French delivery van sales also fell 13.9 percent in January, the CCFA said, leading to a 9.1 percent drop for light vehicle registrations overall.

(Reporting by Laurence Frost and Gilles Guillaume; Editing by Helen Massy-Beresford)