PSA Peugeot Citroen has announced a series of new cost-cutting measures that will see its annual capital expenditure budget reduced to EUR2.5bn ($3.2bn) from about EUR3bn.

The move is designed to counter declining market share in Europe and a reduction in profit margins.

Immediate steps are being taken to generate EUR125m of savings in the second half of 2006, including a hiring freeze. At its plants in France and Spain, PSA is reducing the number of temporary employees and fixed-term contracts by nor replacing departing employees, this combined with the closure of the Ryton (UK) plant means that the workforce in the group's European plants will have been reduced by 10,000 people in one year.

The decision not to build a second production unit at the Trnava plant will lead to a EUR200m reduction in the previously announced EUR350m capital spending programme.

Lastly, the development of synergies between neighbouring plants producing vehicles on the same platform is already underway between Mulhouse and Sochaux and will be extended to Poissy and Aulnay.

A plan to make the automobile development process more efficient has also been launched, with the goal of reducing R&D costs by 15% for vehicles just entering the development process. However the total R&D budget will stay the same over the next three years, enabling PSA to develop more new models more quickly.

The group will also renew core-range models in Europe more frequently to keep the average age low and extend its vehicle line-up to new market segments. In addition to renewing existing product ranges, by 2009 PSA Peugeot Citroën will introduce six new body styles in segments in which it currently has no models.

Outside Europe, an assertive product strategy based on a wide range of models tailored to local customer expectations has been launched. Between 2006 and 2009, 11 model launches are planned for China and six for the Mercosur (South America) countries.

With the signature of a memorandum of understanding to study a possible cooperation with Proton in Malaysia and the search for local production capacity in Russia, the company said it is seeking to establish a presence in new growth markets while limiting its investments.

PSA said earlier this month that chief executive Jean-Martin Folz would retire in January and that it had begun looking for a successor.