The future of Peugeot's factory at Ryton, near Coventry, looked even more uncertain last night after the French carmaker announced a "mediocre" set of annual figures.
PSA Peugeot Citroen revealed that its operating margins had remained stuck in reverse gear in the opening weeks of 2006 thanks mainly to rising raw material prices and the cost of meeting new European emission standards.
Net profit at the world's sixth largest automotive group fell by 38 per cent to £685 million in 2005 from just over £1 billion the year before.
Worldwide sales inched up to 3.390 million - 0.4 per cent ahead of 2004.
The annual operating margin was reduced to 3.4 per cent - well below PSA's six per cent target - from 4.4 per cent previously and slumped as low as 2.8 per cent in the second half of the year.
PSA said margins in the first half of 2006 would be roughly similar but would improve later in the year.
That, combined with sluggish sales in its European markets, adds to fears that the group could eventually close Ryton in favour of concentrating more production in the lower cost areas of eastern Europe.
The plant, which employs about 2,000 people, produces only one model, the popular 206, and this is expected to be replaced in about 2008.
PSA has so far not announced whether or not Ryton will build the replacement car and industry sources say that given the lead times needed to adapt assembly lines and put a new model in production means there is a question mark over its future.
The weekend shift was axed last year with the loss of 850 jobs and even though the 206 was recently declared to be Peugeot's best ever selling car, production numbers are due to be cut to about 109,000 this year compared with 113,000 in 2005.
Commenting on yesterday's figures, chief executive Jean-Martin Folz, speaking in Paris, admitted that the group's financial performance in 2005 had been only "mediocre".
He blamed the higher cost of raw materials such as steel a nd plastic - up by £233 million on 2004 - and said complying with Euro IV emissions rules added a further £66 million to costs.
Based on supply contracts for the year ahead, raw material costs are set to rise by a further £171 million this year.
The group stripped out production costs totalling £420 million last year and the trend is set to continue.
To counter sluggish sales in its main west European market, PSA is stepping up the launch of new models and expanding its geographical reach.
It renewed a third of its models between July 2004 and December 2005 and will refresh another third in 2006.
Arndt Ellinghorst, an analyst at Dresdner Kleinwort Wasserstein said the fact that first half margins remain depressed highlighted the market pressures on PSA.
"Peugeot is less resistant to these pressures, given that their cost savings are flatten-ing out and the new models are delivering less of a positive volume and mix effect than the company was expecting."
Peugeot recently won planning permission to redevelop its UK headquarters site in Stoke, Coventry.