Peugeot plans more cuts as profits plunge

The French car maker Peugeot is to step up its cost-cutting drive after a sharp rise in raw material costs forced the company into its third profits warning in 12 months.

Peugeot, Europe's second-biggest car maker, also said it might bring forward the scheduled closure next June of its Ryton plant in Coventry with the loss of 2,000 jobs, depending on the rate at which workers applied for redundancy.

The details of the renewed efficiency drive will be given in September and are designed to put the company back on track to meet its operating profit targets in 2007. The current cost-saving target of €600m (£410m) a year will be lifted but Peugeot appeared to rule out any further plant closures.

Peugeot had expected its raw materials bill to rise by €200m-€250m this year but it is now forecasting a €450m increase, largely as a result of big jumps in the price of aluminium and the precious metals used to make catalytic converters.

Higher raw material costs in the first half coupled with a less profitable mix of sales combined to reduce Peugeot's operating profit by half to €691m, cutting its margin to 2.4 per cent against a target of 2.8 per cent. Peugeot also cut its profit forecast for the second six months. The warning sent Peugeot shares 10 per cent lower.

Peugeot has taken a €227m charge to pay for the closure of Ryton, which the company expects will generate €91m in annual savings. Its finance director Yann Delabriere said: "The faster people apply for redundancy, the quicker it will close." But he ruled out closing the plant early in "retaliation" against the union campaign to boycott its cars.