The warning came as the company reported a slight fall in first-half profits to pounds 167m as a result of exchange rate losses which knocked pounds 11m off its bottom line.
But LucasVarity said that it remained on course to achieve pounds 120m in annual cost savings by the beginning of 1999 - the target set when Lucas and Varity merged in September last year.
In the six months to the end of July cost savings from job reductions and asset disposals reached pounds 16m and are due to rise to pounds 40m for the full year.
Meanwhile the tax charge has fallen from 36 per cent to 30 per cent. At the time of the merger LucasVarity promised pounds 65m in tax savings a year.
Of the pounds 100m the group aims to raise through the disposal of 13 business with annual sales of pounds 270m, a total of pounds 40m has so far been achieved. LucasVarity has sold five of the 13 businesses and bought three businesses, reducing the worldwide workforce from 55,000 to 51,000.
Victor Rice, chief executive, said that both earnings and trading margins had improved in the second quarter of the year. However, the outlook in its main automotive markets remained flat. Within Europe, LucasVarity expects the UK, Italian and Spanish markets to improve this year but France and Germany to continue to be weak.
Figures released yesterday show that West European car sales rose by 5.3 per cent to 1.2 million in August, taking the overall increase in the year to date to 3.1 per cent.
Tony Gilroy, chief operating officer, said that while the US market was mixed, LucasVarity's strength in the light trucks sector, which includes vans, pick-ups and utility vehicles, should show through in stronger second-half sales.
Mr Rice said there were no signs yet of car makers seeking to squeeze UK supplier prices because of the strength of sterling but he did say that LucasVarity was considering whether to source more of its own supplies from outside the UK because of currency factors.
Meanwhile he shrugged off suggestions that the decision by Ford and General Motors to hive off their components divisions into separate companies posed a threat to traditional suppliers. He forecast this would only result in a "minute" percentage of business being lost.
The company also confirmed that it would complete its share buy-back programme. Earlier this year it announced it would repurchase 43 million shares equivalent to 3 per cent of the company. So far it has completed the purchase of 33 million shares.
Among its new business deals is a contract to supply all the braking requirements on a new model range from the Malaysian car maker Proton.Reuse content