New car sales in France plunged by an annualised 20.2 per cent in February, industry data showed this week, with the worst falls recorded by PSA Peugeot Citroen whose announced tie up with General Motors pushed PSA shares down.
Ratings agency Moody's downgraded the PSA group one notch to non-investment status, warning that similar alliances in the auto sector often failed to match expectations.
Moody's slapped Peugeot with a Ba3 rating and a negative outlook based on poor earnings while adding that previous mergers and alliances "have often not resulted in the anticipated competitive advantage and improved performance".
Sales in February by Peugeot plummeted by 29.2 percent while fellow French carmaker Renault saw its sale drop 28.5 percent.
The sharp drop is in large part explained by strong sales a year earlier fuelled by a French "cash-for-clunkers" scheme that subsidised new car purchases to boost the auto sector.
Sales in February by foreign automakers were stronger, falling only 7.3 percent overall with some companies, such as Japan's Nissan, German BMW of Germany and South Korea's Hyundai, showing growth.
But sales from General Motors fell by 25.7 percent to 7,819 cars.
The drop in new car registrations should continue in March, CCFA warned and the committee has forecast a total market contraction of between 7 and 10 percent for this year.
On Wednesday GM and Peugeot - Europe's number two automaker - said they would form a global partnership with GM taking a seven-percent stake in the French firm through a reported one-billion-euro capital increase.
The two companies agreed to share vehicle platforms and create a joint venture to purchase commodities and other goods and services. They targeted $2 billion (1.5 billion euros) in annual savings within five years from the alliance.
Peugeot's share price sank by more than 5.0 percent on Thursday in a largely flat Paris market with traders focused on the capital increase caused by the venture instead of any potential synergies.
"The share price is suffering because of the capital increase that will dilute the shares and (traders) are ignoring the good news for the moment," Deutsche Bank analyst Gaeten Toulemonde said.
The automakers have struggled with flagging sales in Europe, where the eurozone debt crisis has brought on recession and a the sharp slowdown in demand for autos.
Thousands of workers at a Peugeot factory north of Paris were temporarily laid off this week as the company looks to avoid stockpiling as demand dwindles.
Hundreds of workers at a Renault factory west of Paris meanwhile marched and blocked traffic on Wednesday demanding salary increases, but Renault said its hands were tied by the deteriorating auto market.