PSA Peugeot Citroen announced a 1.1 billion euro ($1.52 billion) writedown on Thursday, reflecting a weaker sales outlook and currency headwinds in Russia and Latin America.
Peugeot will take the asset impairment on its 2013 earnings, widening an automotive operating loss that came to 510 million euros in the first half, the Paris-based company said in a statement.
The company also cut its 2018 savings goal from joint programs with General Motors by 40 percent to $600 million for each partner, after the carmakers dropped plans to pool the development and production of small cars.
But Peugeot reiterated its full-year goal of halving the negative 3 billion euro operating cash flow recorded in 2012.
Earlier it said it was weighing new commercial and industrial projects with partners including China's Dongfeng Motor Group, backed by a capital increase.
"There is no agreement on the terms of a potential operation," Peugeot said in a statement. "These discussions are at a preliminary stage and no assurances can be given as to their conclusion."
(Read more: Peugeot board approves outline Dongfeng deal)
According to a source familiar with the matter, the carmaker's board approved a draft alliance plan this week in which Dongfeng and the French state would buy large minority stakes at a 40 percent discount to Peugeot's current share price.
The board agreed to enter final negotiations on a 3.5 billion euro ($4.8 billion) share issue that would see France and Dongfeng take matching 20 percent holdings, the source said on Wednesday, speaking on condition of anonymity.
The capital increase would be priced below 7 euros per share, and perhaps as low as a 6.85 euro indicative offer from Dongfeng, the source said. Peugeot's shares had closed at 11.50 euros before the Reuters report.
Peugeot declined further comment on the terms of the planned Dongfeng tie-up. Dongfeng officials could not be reached after hours in Wuhan, China. The French government also declined to comment.
Peugeot, one of the carmakers worst hit by the European market slump, is cutting jobs and plant capacity to try to halt losses within two years.
Philippe Varin, Peugeot's outgoing chief executive, has said the French carmaker is exploring a deeper relationship with Dongfeng, its existing partner in a Chinese joint venture.
Peugeot and Dongfeng, its partner in an existing Chinese joint venture, have been in talks for months to extend cooperation to other Asian countries, backed by a multi billion-euro share issue, sources have said.
(Read more: Peugeot loses ground as Europe car slump continues)
The hefty discount on the outline deal approved by the French carmaker's board partly reflects worsening conditions and currency headwinds for Peugeot, the source said.
Under its outline terms, Dongfeng and the French state would each hold about 20 percent of Peugeot after a reserved share sale to the French state and Dongfeng and accompanying rights issue for existing shareholders.
The founding Peugeot family would lose control as its stake was diluted from 25 percent to 15 percent even after acquiring some new stock in the rights issue, the source said.
(Read more: Peugeot stock tumbles on rights issue reports)
The effect would be even more dilutive for 7 percent-shareholder General Motors or any other existing investors that turn down the chance to buy new shares. Peugeot hopes to conclude the deal in January or February, according to the source.
In a move that may help secure the new funding from Dongfeng, Peugeot last week named former Renault No.2 Carlos Tavares as its next chief executive.
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