Reporting a first-half loss as executives discussed 8,000 planned job cuts with unions, Peugeot said the layoffs would help to generate 1.5 billion euros ($1.8 billion) in savings and halt the mounting losses that threaten its future.

“The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganisation,” Chief Executive Philippe Varin said, in a likely sign of things to come for the European car sector as a whole.

Europe’s No.2 car maker posted a 662 million euro loss at its auto division, dragging the group’s bottom line into the red, as it had warned this month when announcing the job cuts and a plant closure.

Peugeot shares closed 2.5 percent lower at 6.08 euros, the second-worst performers on the CAC40 index.

Credit ratings agency Standard & Poor’s later on Wednesday cut its ratings on Peugeot to BB from BB+ with a negative outlook, citing the company’s rapid cash burn.

Close to 2,000 workers marched to Peugeot’s Paris headquarters in protest against the cuts, setting off smoke flares, banging drums and bringing traffic to a standstill. Inside the building, their representatives on the works council exercised their right to demand an independent report, potentially delaying the reorganisation by up to three months.

“This plan is unacceptable and unjustified,” said Jean-Pierre Mercier of the CGT, France’s biggest industrial union. “PSA’s attack on jobs concerns all the group’s sites.”

GOVERNMENT TEST

Unveiling the cutbacks on July 12, Varin had said that any further delay “would have put the group in great danger.”

But the decision to close Peugeot’s Aulnay plant near Paris, a key part of the plan, had been leaked more than a year ago and previously denied, sparking government accusations that Varin had lied to workers and the public.

Peugeot’s restructuring is the first industrial crisis to test Socialist President Francois Hollande’s two-month-old administration. It may also turn out to be the first in a series of shake-ups for the European auto industry.

Fiat Chief Executive Sergio Marchionne has warned that he may have to close another Italian plant, and Renault’s Carlos Ghosn predicted in March that significant restructuring by a European automaker would force others to follow.

Ford, already slowing European assembly lines and shedding temporary workers, doubled its full-year loss forecast for the region to $1 billion and said on Wednesday that it was “facing the situation with urgency.”

Arnaud Montebourg, France’s recovery minister, outlined support measures for the industry and said that the government would formally ask Brussels to monitor South Korean car imports with a view to taking trade action.

Sales by Hyundai and Kia have surged at the expense of Europe’s incumbent brands since a free-trade agreement took effect between the European Union and South Korea in July 2011.

“In some categories, such as small diesels, imports have risen 1,000 percent in a year,” Montebourg said. France is “perfectly justified” in asking for European Commission surveillance that may lead to the return of duties, he added.

French electric car subsidies will rise to 7,000 euros per vehicle, from 5,000 euros, under Montebourg’s support plan. Tax incentives on fuel-efficient cars will increase by 150 euros, with incentives on hybrids doubling to 4,000 euros.

However, adding further to the sector’s woes, Renault said on Wednesday it was pushing back the launch of its Zoe electric car, which had been expected in late 2012, because of difficulties integrating a console tablet with speech recognition to control several key functions of the car.

“Our decision to extend testing means the car will now be launched in 2013,” said a Renault spokeswoman, who declined to provide a specific date for the launch.

GLOOMY OUTLOOK

Peugeot’s redundancies, combined with Aulnay’s closure and 6,000 European job cuts announced last year, will generate 600 million euros in savings for 2015, the company said.

It also pledged to cut 550 million euros of investment and save a further 350 million through cooperation with alliance partner General Motors Co.

Peugeot said it burned through 954 million euros of operating cash in the first six months of the year as sales fell 5.1 percent to 29.55 billion. Its net loss of 819 million euros compared with a profit of 806 million euros in the same period last year. Asset sales trimmed net debt to 2.4 billion euros from 3.4 billion at the end of December.

The latest savings goal follows 4.7 billion euros of earnings improvements announced by Varin since 2009, Credit Suisse analyst Erich Hauser said. “If you’re delivering on these and still losing money like there’s no tomorrow, it doesn’t really inspire a lot of confidence,” Hauser added.

Europe’s gloomy economic outlook does not bode well for Peugeot, which now expects the market to shrink by 8 percent in 2012, against the 5 percent predicted at the start of the year.

The Peugeot and Citroen brands’ combined share of the European market fell one percentage point to 12 percent in the first half, with global sales tumbling 13 percent to 1.62 million vehicles.

The French automaker has warned that it will continue bleeding cash until 2014. To stem the losses, it has already sold its Paris headquarters on a lease-back deal. Other assets on the block include a large stake in logistics division GEFCO.

People familiar with the process told Reuters Peugeot was working on a financing package to help push through the sale of GEFCO, as the French auto group fights to keep the critical disposal on track. DM

Photo: Visitors walk on the Peugeot booth during the second media day of the 82nd Geneva Auto Show at the Palexpo Arena in Geneva March 7, 2012. The Geneva Motor Show will take place form March 8 to 18, 2012. REUTERS/Denis Balibouse