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Paris - Struggling French carmaker PSA Peugeot Citroen said on Thursday it would slash 8 000 jobs, blaming this on a failing European market, in a shock announcement that sparked a fierce union response.
Unions slammed the announcement as a "declaration of war" and an "earthquake," with the hardline stance certain to add to the problems facing the new Socialist government as it deals with France's flagging economy.
President Francois Hollande was elected in May on a promise to put the economy back on track, focusing on growth rather than the austerity policies adopted across Europe in the face of the eurozone debt crisis.
Prime Minister Jean-Marc Ayrault said the layoffs were "a real shock" and announced that the government would present its rescue plan for the struggling auto industry on July 25.
Shares in Peugeot rose on news of the lay-offs.
The auto industry is strongly unionised and a major employer in French manufacturing, with job losses there having a knock-on effect on the wider economy.
PSA, France's biggest carmaker and second in Europe to Germany's Volkswagen, said it expected the European market to shrink eight percent this year and had to adjust its business in the face of the worsening outlook.
For the period 2007-12, the market is down 23%, it said, compounding problems which left its plants operating at just 76% of capacity in the first half of this year.
PSA said the problem was even worse in the small car segment, which accounts for 42% of its sales "and where most of the competing models are made in low-cost countries".
As a result, the auto division is expected to report an operating loss of some €700m for the first of half of 2012, producing overall a net loss for the period.
PSA said in a statement that it would cease production at its historic Aulnay site near Paris which employs 3 000 people, with 1 400 jobs going at its Rennes plant.
In addition, some 3 600 jobs will be cut across the corporate structure, as the company continues "reducing costs and improving its operating efficiency."
Following the announcement made to unions at an extraordinary meeting, Peugeot boss Philippe Varin vowed that "nobody would be left by the wayside".
"I am fully aware of the seriousness of today's announcements, as well as of the shock and emotions they will arouse," Varin said in a statement announcing the job cuts.
"The depth and persistence of the crisis impacting our business in Europe have now made this reorganisation project essential in order to align our production capacity with foreseeable market trends," Varin said.
The measures should allow the company to "get back on track" and secure its future as well as that of auto production in France, he added.
PSA, trying to cut the overcapacity that is blighting the whole European industry, announced earlier this year a tie-up with US giant General Motors in an effort to cut costs.
Previously released figures showed PSA first half European sales down 18% to 980 000 cars and commercial vehicles, with its market share falling to 12.9% from 13.9%.
The company had already planned to trim its workforce by 4 000 this year as it tries to reduce overcapacity amid a major slowdown in car sales in Europe linked to the eurozone debt crisis.
"As soon as Peugeot announces the loss of 8 000 to 10 000 jobs, you have to multiply by three or even four to measure the impact in terms of jobs for the entire country," CGT union Bernard Thibault said, vowing that his union would "react".
But the Socialist mayor of Paris Bertrand Delanoe said that while the state should protect jobs, it should also not finance loss-making companies.
"The state should protect employees in their predicament with an industrial and economic policy," he told Radio Classique. "But that doesn't mean financing a factory that is losing money and cannot be sold."
The head of former president Nicolas Sarkozy's right-wing UMP party, Jean-Francois Cope, needled the government about making French manufacturing more competitive.
"The government should know that in this domain, the opposition I speak for, will be at the government's side when it comes to realising finally that our country's absolute priority is our industry's competitiveness," Cope said.
