September 26, 2012 / 8:52 PM / 5 years ago

French carmakers say European slump to take toll

Cars are displayed at the Renault exhibition area on the eve of a media preview at the upcoming Paris Car Show September 26, 2012.Jacky Naegelen

PARIS (Reuters) - The heads of France's main automakers issued grim warnings on the prolonged European market slump and its consequences as industry executives gathered for the Paris auto show.

Renault (RENA.PA) slashed its market forecasts on Wednesday on the eve of the European auto industry's biggest event of the year and said its full-year vehicle sales goal was under pressure.

PSA Peugeot Citroen (PEUP.PA) Chief Executive Philippe Varin, who in July announced a factory closure and 8,000 additional job cuts, predicted that rivals would soon be forced to follow suit.

"It's obvious that a certain number of plants will have to close," Varin told Les Echos in an interview published on Wednesday, describing the European industry's situation as "untenable".

Europe is in the grip of its most sustained auto-market slump in decades, piling up regional losses for mass automakers such as Peugeot, Ford (F.N) and General Motors' (GM.N) Opel division.

"Some of our competitors in Europe are losing even more money than us on every car they sell," Varin said. "We've laid out our plans, but other manufacturers will have to take similar steps."

Peugeot is seeking to cut more than 10 percent of its 100,000-strong domestic workforce in response to a sales collapse that has seen the automaker consume almost 200 million euros ($257 million) a month in cash.

Renault CEO Carlos Ghosn, in a separate interview with Le Figaro newspaper, reiterated the company's pledge to achieve positive operating cash flow this year, even as its outlook darkens.

The French automaker told investors earlier on Wednesday that it expects the auto market to shrink 13 percent in France and 7-8 percent in Europe this year - compared with previously forecast declines of 11 percent and 6-7 percent respectively.

LABOUR COSTS

Renault's goal to increase deliveries this year is "strongly under pressure", Ghosn said.

"We see no improvement next year," he added. "The market will be at best stable, or more likely a little lower."

Renault can offer no guarantees against job cuts, the CEO added, calling for government action to improve industrial competitiveness. The French state has a 15 percent stake in Renault and two board seats.

Recent statements by ministers seem "headed in the right direction", Ghosn said. "But now we're waiting for decisions and a plan of action."

Peugeot's Varin also pressed for measures to cut French industrial labor costs by 5-10 percent through a reduction of wage taxes and said discussions were underway on moves to prolong state-subsidized temporary layoffs.

Peugeot and GM still intend to develop four vehicle programs together under the framework of the cost-cutting alliance unveiled earlier this year, Varin added.

The two carmakers outlined plans to pool development of large sedans, compact minivans or SUVs, a subcompact for emerging markets and another small car with an unspecified "low-emissions" powertrain, in addition to a dual-clutch transmission.

Joint technical working groups are scheduled to report back on the projects at the end of October.

Editing by James Regan

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