By Agence France Presse (AFP)


PARIS: France's biggest carmaker PSA Peugeot Citroen announced a huge loss Wednesday and said it would cut its workforce by about 11,000, warning that the European car market could slump by a fifth this year. The firm posted a net loss of 343 million euros ($443 million) in 2008 - after making a profit of 885 million in 2007 - despite strong sales in the first half of the year before the credit crunch began to bite.

Peugeot will cut its output by 20 percent over the year, finance director Isabel Marey-Samper told reporters as she presented the earnings report.

The company's shares fell after the worse-than-expected results and Peugeot's warning that it was not expecting things to turn around soon.

Faurecia, a parts supplier 71-percent owned by Peugeot, also announced massive losses - 547 million euros - and announced it would seek the larger firm's help in a plan to recapitalize.

"The group expects Western European automotive markets to experience a further decline of around 20 percent in 2009 followed by stability in 2010," group chairman Christian Streiff said in a statement.

"The first half of 2009 is expected to be particularly difficult. 2009 is expected to be loss-making for the group," he added.

Streiff refused to comment on Italian reports that his group may enter into an alliance with Fiat but said existing tie-ups with BMW for engine production, Fiat for light trucks and Mitsubishi for 4x4s were strong and would continue.

Peugeot plans to cut costs by reducing headcount by around 11,000 over the year in its European factories, Marey-Samper said.

PSA Peugeot Citroen employed 207,850 people worldwide in 2007.

While the departures are expected to be on a voluntary basis, the move risks exacerbating a row over protectionism in Europe, after Peugeot agreed that workers in its homeland would be protected.

On Monday, French President Nicolas Sarkozy agreed to lend Peugeot and its French rival Renault 3 billion euros each in exchange for a promise that they would not lay off French workers or close French plants.

Peugeot notably has large sites in Slovakia and the Czech Republic, and both Prague and the European Commission have warned Paris not to protect its own industry at the expense of that of its EU partners.

Nevertheless, Peugeot has agreed to Sarkozy's bargain, and Streiff said: "France is, of course, our biggest country in terms of employees, but we have lots of staff in other countries which we are currently reducing quickly." The European Commission has promised to study Sarkozy's deal carefully to ensure that it complies with the EU single-markets competition laws, and has not yet given the go-ahead for the five-year loan deal.

While regarded in Paris as a national champion, Peugeot produces only about 40 percent of its vehicles in its five homeland plants, and maintains European sites in Spain, Czech Republic, Slovakia, Italy and Portugal.

Outside the EU, it also produces cars and vans in Turkey, China, Argentina and Brazil.

Peugeot sales fell by 7.4 percent last year from the 2007 level to 54.4 billion euros, reflecting a global drop in demand. Operating margin fell to 1 percent of sales from 3 percent in 2007.

Within minutes of the announcement, Peugeot shares fell 4.66 percent to 13.71 euros in Paris, although they were later trading only two points down.

"Faced with the prospect of a prolonged recession, our priorities are clear. We must concentrate all our efforts on reducing inventory and minimizing our cash consumption," Streiff said.

In order to finance its 2009 operations, the firm will need to borrow around 4 billion euros, he added, noting that the 3 billion from the French state would allow it to meet this target. - AFP