Valeo plans to axe 5,000 of its 54,000-strong global workforce due to the decline in vehicle production.

"In September 2008, new vehicle sales in Europe reached their lowest level in a decade. The decline in automobile production accelerated in the fourth quarter of 2008: output is expected to drop by over 20% worldwide, by nearly 30% in western Europe and by 38% in France," the supplier said.

"For 2009, Valeo anticipates no improvement in production levels compared with the fourth quarter of 2008.

"Given this situation, and despite the measures already implemented by the group, Valeo must reduce its permanent headcount in order to maintain its competitiveness."

The company said it would axe around 1,600 jobs in France and 1,800 in other European countries, leaving 1,600 to go elsewhere. It employs 15,400 in France where it is based.

"At the same time, Valeo is continuing and reinforcing its cost reduction plans and rigorous cash management," the company added.

Valeo added that, following consultations with employee representatives, it would propose a plan "prioritising voluntary departures".

Valeo said it expected sales to fall about 25% in the fourth quarter with a negative operating margin for the same period. It is forecasting an operating margin of around 2.6% for full-year 2008 compared with 3.6% expected a few months ago.

"Faced with a worsening global economy, and against a backdrop of sharply declining automobile production, Valeo is adapting to the situation in order to maintain its competitiveness. The group is taking the appropriate measures which will enable it to continue to strengthen its competitive positions," said chairman and CEO Thierry Morin.

Valeo said it had "sufficient" financial resources and no significant debt reimbursement due before January 2011.