French carmaker PSA Peugeot Citroen shocked France today with the news that it will cut 8,000 jobs.
The announcement sparked union anger and underlined the country's competitiveness problems.
France's Prime Minister Jean-Marc Ayrault said the layoffs were "a real shock".
He said the government would present its rescue plan for the struggling auto industry on July 25.
Peugeot shares initially jumped higher on news of the layoffs, but then tumbled to their lowest level in more than 20 years after Minister of Industrial Renewal Arnaud Montebourg said the government did not accept the plan.
"We do not accept the plan in its current state," Montebourg told the Senate, without saying what pressure the government could bring to bear on the company. 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 8% this year and had to adjust its business in the face of the worsening outlook.
For the years between 2007 and 2012, 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. 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 as well.
PSA said in a statement that it would cease production at its historic Aulnay site north of Paris which employs 3,000 people, with 1,400 jobs also going at its Rennes plant in Brittany. In addition, some 3,600 jobs are to be cut across the corporate structure, as the company continues "reducing costs and improving its operating efficiency."
The company employed a massive 100,000 people in France at the end of 2011. The Aulnay closure is the first of a car factory in France since Renault's iconic plant at Boulogne-Billancourt closed 20 years ago.
Peugeot boss Philippe Varin vowed that "nobody would be left by the wayside". "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 in a statement.
Varin said Peugeot would present further ideas, including plans to "adjust investments" and a "muscular effort" to cut costs, on July 25 when it announces quarterly results.
PSA, trying to cut overcapacity that is blighting the whole European industry, announced earlier this year a tie-up with US giant General Motors 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%.
