PSA Peugeot Citroen yesterday cut its 2005 profit outlook for the second time in three months as European car sales deteriorated further in the last quarter of 2005.

Car makers are struggling to make money in a European market where pessimistic consumers are delaying bigticket purchases, despite record-low interest rates.

PSA, the world's sixth-largest carmaker, now predicts gross operating income of 1.94 billion euros (£1.32 billion) for 2005, or 3.4 per cent of sales, compared with 2.53 billion (£1.74 billion) in 2004.

In October it cut its fore-cast to a margin of "around four per cent" from a range of 4-4.5 per cent, and sector analysts reduced their consensus estimate to 3.7-3.8 per cent.

Responding to yesterday's announcement, Deutsche Bank analyst Alexis Boyer said: "It's disappointing after the third-quarter profit warning.

"It looks like another profit warning. Now what is Jean-Martin Folz [the PSA chairman] going to say about 2006? His message should be cautious."

PSA, which builds the popular Peugeot 206 at its Ryton plant near Coventry, sold 3.39 million vehicles in 2005, a rise of 0.4 per cent.

Further model launches should boost unit sales in Western Europe in 2006, PSA said, while in the rest of the world, sales growth was expected to remain high, relative to the last two years.

Unit sales in Western Europe were down by 2.7 per cent in 2005, while elsewhere they rose 8.4 per cent.

Peugeot has put a question mark over the future of Ryton by so far not announcing a new model for the plant to succeed the 206 which is due to run out in about 2008.

PSA, which is cutting production at its Mulhouse, Rennes and Sochaux factories, said that in the last quarter of 2005, European sales had declined more than expected and the market had become even more competitive with its market share slipping to 14.3 per cent from 14.6 per cent.

"Because of that, the production reduction announced in the autumn has been stepped up but nevertheless without allowing us to bring down the stock of vehicles to target levels," the company said..

Worldwide sales of Peugeot vehicles were 1.6 per cent lower last year but Citroen ended 3.5 per cent up.

PSA launched several new models in 2005; the Peugeot 407 saloon, the 1007 small car with electric sliding doors, the small 107 and the Citroen C1 city car, with recent additions the 407 coupe and the luxury C6 limousine.

Next week it is set to launch the 207 compact car.

The Peugeot arm expects car sales to exceed two million units this year and hopes to sell over half a million of the 207 model in 2007, the brand's head said.

Frederic Saint-Geours expected to invest about one billion euros (£684 million) in launching the 207.

He said the European market would remain tough. "I see no reason why there would be a let up on competitive pressure in 2006." ..SUPL: