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French auto industry faces moment of truth

Peugeot and Citroen logos are seen over the French carmakers' showcases on media day at the Paris Mondial de l'Automobile, September 28, 201
Peugeot and Citroen logos are seen over the French carmakers' showcases on media day at the Paris Mondial de l'Automobile, September 28, 201

By Gilles Guillaume

PARIS (Reuters) - The gravity of the French auto industry's crisis will be underlined this week by weak results at PSA Peugeot Citroen and Renault , boosting pressure on both for tougher cost-cutting moves.

France's mass-market car brands are suffering more than most from Europe's deep car sales slump, punished by their exposure to austerity-hit southern markets.

"After the catastrophe of 2012, the companies will all make caution the order of the day," said Societe Generale auto analyst Philippe Barrier. "But the key to the medium-term outcome is how the industry is going to adapt to the low level of the market and prepare for the future."

Before Peugeot and Renault, which report on Wednesday and Thursday, respectively, tyremaker Michelin and parts maker Faurecia publish results on Tuesday.

Further cost-cutting, even to the point of politically sensitive layoffs, may loom as options for all four French industrial heavyweights as they struggle to adjust to an expected long-term slump in European demand.

Peugeot lost business to the likes of Hyundai <005380.KS> and Volkswagen last year, while Renault's regional market share also dipped 1.1 percentage points to 8.4 percent, registrations data from Brussels-based industry body ACEA showed.

With productivity a key issue, Renault, which plans to eliminate 8,200 jobs over the next four years through attrition, wants to strike a deal on factory "flexibility" with unions on Tuesday, wrapping up thorny talks which kicked off last autumn.

Renault has promised not to close any French plants if workers accept a salary freeze, longer working hours and measures including compulsory transfers between sites.

The French government, while generally critical of profitable companies which cut jobs, has encouraged unions to sign a deal out of fear that their refusal to do so could provoke the kind of tensions caused by the closing of Peugeot's Aulnay plant on the outskirts of Paris, announced last year.

Renault's main union, the CFE-CGC, has said its signature on any deal would come only in return for concrete assurances on numerical production targets for each factory involved.

Tuesday, the key day for the talks, could bring new stoppages at Renault plants, while a works council meeting over Goodyear's plan to shutter a French factory employing 1,200 people highlights the risk in not reaching a deal.

The companies' results will underscore the industry's dire state, but many of the losses have already been flagged. Faurecia said last month its full-year results would show a 62 percent slump in net profit and an unexpected hike in debt.

Peugeot, Europe's No. 2 automaker, last Thursday said it was taking a 4.1 billion euro writedown on its industrial assets on top of an expected net loss for 2012.

Peugeot is expected to report a full-year loss of 1.47 billion euros, according to an average of estimates by analysts polled by Thomson Reuters I/B/E/S, although those figures do not include last week's writedowns.

Renault's profit is expected to decline to 1.78 billion euros from 2.09 billion, while Faurecia is seen reporting net income of 160 million, less than half the year-ago figure.

Michelin, on the other hand, is seen reporting a rise in net profit to 1.64 billion euros.

(Writing by Christian Plumb; Additional reporting by Laurence Frost; Editing by Helen Massy-Beresford)

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