Cost cutting for Peugeot Citroen as targets are slashed

French car maker PSA Peugeot Citroen cut its profit target for its main automotive division on Wednesday, citing pricing pressure in a tougher European market, and said it plans to cut costs by 800 million euros next year.

Third-quarter sales slipped 1.6 percent to 9.31 billion at the division, PSA said in a statement. Group sales rose 3.5 percent to 13.45 billion, helped by its majority stake in car parts group Faurecia .

PSA said it now expected automotive division recurring operating income to be close to break-even for the full year "in a more difficult European market environment", compared with a previous target for "clearly positive" profit.

PSA added that group free cash flow would be negative as at December 31, compared with a previous forecast for it to be close to break-even.

"The competitive environment has become more challenging due to pricing pressure, which has intensified in Europe since September, and the unfavourable impact on the country mix of the fall-off in demand in southern Europe," PSA said.

Revenue from new vehicle sales fell 3 percent in the quarter, while the volume of vehicles it assembled, excluding China, fell 6.8 percent, the car maker said.

Difficulties in the supply of screws in September hit all of its European plants, causing a production shortfall of 45,000 vehicles and "heavily impacting the sales performances" of the Peugeot and Citroen brands in Europe, PSA said.

"Competitive pressure intensified in the last month of the quarter," PSA added.

The group added that it would present plans to workers on Wednesday to cut purchasing costs by 400 million and fixed costs by a further 400 million next year to counter the tougher market.