Peugeot sinks on fears cutbacks not enough

The shares fell as much as 9.2 percent to 6.372 euros as investors digested the disclosure of deeper losses and gloomier prospects than the French company had before acknowledged. Moody's said it may downgrade Peugeot's credit rating.

European car makers are weathering worst auto-market slump in decades, with Peugeot suffering more than most through its exposure to southern markets worst hit by the region's debt crisis and downturn.

His minister for industrial revival said he would explore alternatives with the company and trade unions. Now the government has so far stopped short of demanding Peugeot drop the plan, drawing the wrath of the unions.

The automaker raised 1 billion euros in a March share issue and is targeting a furthermore 1.5 billion from asset sales as it struggles to move its two brands upmarket - a strategy some analysts have questioned.

A day afterwards announcing France's first car plant closure in two decades, Peugeot Chief Executive Philippe Varin called for action to reduce labour costs when the government unveils a broad auto-sector support plan on July 25.

But Prime Minister Jean-Marc Ayrault retorted that it was “a bit too easy” for Varin to blame payroll taxes for his company's predicament.

The cause of the Peugeot layoffs

“Labour costs are not the cause of the Peugeot layoffs, contrary to what management has been saying,” Ayrault told reporters. The government however had “questions for Peugeot” about the restructuring, he said. - Reuters