PSA Peugeot Citroen
pledged additional savings and asset sales including its Gefco transport and logistics unit as it struggles to cut debt and battle losses at its auto division.

Europe's second-biggest automaker recorded a second-half operating loss of 497 million euros at the core manufacturing arm, compared with a year-earlier 96 million euro profit, the company said on Wednesday.

PSA raised its 2012 savings target by 200 million euros to 1 billion and pledged to reduce stocks of unsold cars to improve cash flow - a negative 1.6 billion euros in 2011.

These poor results do not undermine the strategy we've been following, Chief Financial Officer Jean-Baptiste de Chatillon told reporters. We're giving ourselves the resources to pursue it.

PSA, the carmaker worst hit by Europe's autos slump, is struggling to finance the overseas expansion needed to reduce dependence on its stagnating home region.

As well as pulling out of the Le Mans 24 Hours endurance racing to save costs, Chief Executive Philippe Varin last month put a planned India factory on hold.

The company gave no earnings guidance for 2012 but pledged to raise a total of 1.5 billion euros from asset sales including Gefco. PSA does not rule out selling a majority stake in the wholly owned business while remaining a strategic shareholder, Chatillon said.

Gefco transports new vehicles between factories and distributors for Peugeot, Citroen and rival automakers. The logistics business posted a 13 percent increase in operating profit to 223 million euros, for a 5.9 percent margin on sales of 3.78 billion euros.

Peugeot shares rose as much as 4.5 percent before giving up most of their gains to trade 0.1 percent higher at 15.13 euros at 0932 GMT. The stock has declined 49 percent over the past 12 months, the worst performance on the 15-member Stoxx Europe autos and parts index <.SXAP>.

PSA is the first European automaker that's had to dispose of assets to stabilize its balance sheet, London-based Credit Suisse analyst David Arnold said.

The Gefco sale highlights the severity of the situation facing PSA, he said. Asset disposals are a double-edged sword - giving up future earnings to secure the balance sheet today.

In addition to the previously announced 440 million-euro sale of car rental business Citer, PSA aims to raise 500 million from property disposals and at least 560 million from the sale of a Gefco stake, CFO Chatillon said.

Further savings will be made in research and development, marketing and general expenses without job losses in addition to the 6,000 European positions to be eliminated with cuts announced in October, Chatillon said.

We are postponing some selected capacity increases worldwide and putting a stop to less profitable projects, Varin told analysts on Wednesday, declining to elaborate.

Net income plunged 48 percent to 588 million euros last year as operating income fell 27 percent to 1.32 billion, excluding one-time gains and losses, trimming the group operating margin by 1 percentage point to 2.2 percent. Sales rose 6.9 percent to 59.91 billion euros.

The sales figure beat the 58.62 billion euros predicted by analysts, while net income fell short of the expected 736 million euros, according to average estimates compiled by Thomson Reuters.

PSA still depends on Europe for 52 percent of its deliveries, with the slumping French, Italian and Spanish markets together accounting for almost one-third of the global total.

The company last year outpaced a 1.4 percent decline in regional car registrations, dropping one percentage point of market share as its sales plunged 9 percent.

In a sign of domestic improvement, PSA's French sales picked up sharply in January, Lettre AutoK7 VN reported on Wednesday. Peugeot's orders rose 12 percent and Citroen's 10 percent after a slump of about 60 percent in December, according to the trade publication's survey of more than 300 car sales outlets.

The automaker said its available cash and undrawn credit fell to 9.6 billion euros as of December 31 from 11 billion euros six months earlier.

Thanks to the asset disposals, net industrial debt will decline this year after spiralling to 3.36 billion euros as of December 31 from 1.24 billion a year earlier, PSA said. ($1 = 0.7616 euros)

(Reporting by Laurence Frost; Editing by James Regan and Helen Massy-Beresford)