Peugeot Citroen and Chrysler wield the axe as demand for cars collapses

The French car giant PSA Peugeot Citroen has issued a profits warning and vowed to "massively" cut car production this quarter, in response to a dramatic deterioration in Europe's economy.

Europe's second biggest car manufacturer revealed the drastic action after posting a 5.2 per cent slump in third-quarter sales to €13.3bn (£10.6bn).

The warning by PSA Peugeot Citroen came as the American car giant Chrysler said it will cut up to 5,000 administrative and temporary jobs before the end of December. Their rivals Renault, Daimler and Fiat have all slashed their financial targets recently, pointing to a deepening crisis in global sales of automotives. Industry experts forecast that some big manufacturers may have to merge to safeguard their future and speculation has linked Chrysler to talks with General Motors.

Peugeot Citroen said yesterday it would slash production by 30 per cent after a global "collapse" in demand for cars. The group expects Western Europe's automotive markets to fall 17 per cent in the fourth quarter of 2008. Peugeot Citroen said that given the "dramatic decline" in the macroeconomic environment in the second half of 2008, the group expects vehicle sales volumes to be 3.5 per cent below 2007 levels.

Christian Streiff, president of PSA Peugeot Citroen, said: "We have reacted very swiftly to this market collapse with exceptional measures to cut prod-uction, even though this is obviously detrimental to our 2008 operating margin. Massive production cuts will be made in the fourth quarter as it is vital that we are correctly positioned to face 2009."

Yesterday, Chrysler said it was likely that every facility Chrysler has around the world will be affected by the job cuts. On Thursday, the German car maker Daimler said that its remaining 20 per cent stake in Chrysler was now effectively worthless. It is still in talks to sell the share to the US giant's majority owner, the private equity firm Cerberus.

In 1998, Daimler bought Chrysler, but last year sold an 80.1 per cent stake to Cerberus for $7.4bn, a huge loss on what it originally paid.