Peugeot to cut 6,000 jobs after profit warning

 
City A.M. Reporter
French carmaker PSA Peugeot Citroen, beset by gloom in European showrooms, has warned its core business would make barely any money this year and announced 6,000 job losses to cut costs.

Setting a bleak tone for a slew of earnings reports from European car makers this week, PSA said pricing pressure and falling demand in southern Europe had brought a "more difficult environment."

Recurring operating income at its automotive division will be close to break-even for the full year, compared with a previous target for "clearly positive" profit, the company said.

PSA pledged to reduce costs by €800m (£500m) next year, including the job cuts, and expected 2011 free cash flow to be negative.

"The competitive environment has become more challenging due to pricing pressure, which has intensified in Europe since September, and the unfavourable impact on the country mix of the fall-off in demand in southern Europe," the company said.

Third-quarter sales slipped 1.6 per cent to €9.3bn at the carmaking division, while group sales rose 3.5 per cent to €13.45bn, helped by its car parts group Faurecia, which on Monday posted a 16 per cent quarterly sales rise.

PSA plans to move its model range upmarket and expand abroad to capture growth in emerging markets and reduce its dependence on Europe. Sales outside the region have risen to 41 per cent of the total, PSA said.

"The company's efforts to move upmarket mean it needs to stand firm on price, but the increasing levels of competition in the European market mean the cost of such a strategy is increasing," Barclays Capital analysts said in a note.

"It's hard not to think PSA's position will become even more untenable as the competition seek and achieve greater scale."

PSA shares fell as much as 5.7 per cent in early trading, the biggest fallers on the European index of auto makers and auto parts suppliers , before recovering some losses to close down 0.9 per cent.