Ford-owned Volvo said Wednesday it had given layoff notices to 1,200 workers in Sweden following a $151 million first-quarter loss on declining U.S. sales.
The company said it has started negotiations with unions representing staff in Goteborg and Olofstrom in the west and southern parts of Sweden.
Volvo will also cancel contracts with around 500 consultants and plans to reduce its overseas work force by 300 people.
The company said the layoffs are part of a program to cut costs by around 4 billion kronor ($662 million).
"We must tackle the difficult market conditions, most of all in the U.S. market," Volvo Cars Chief Executive Fredrik Arp said.
The company said the weak U.S. dollar and rising raw material prices have weighed on results for a long time, but that the situation has deteriorated further with the continued decline in the U.S. market and weaker market conditions in Europe.
U.S.-based Ford Motor bought Volvo Cars in 1999.
Ford's stock price has slid in recent weeks amid record-high gasoline prices, a sluggish economy and the announcement that it no longer expects to return to profitability by 2009.
The top deputy of prominent Ford shareholder Kirk Kerkorian, former Chrysler Chief Financial Officer Jerry York, recently suggested Ford should sell its Mercury and Volvo brands.
However, while the company has earlier sold its Aston Martin, Land Rover and Jaguar brands, it has said it plans to keep Volvo and work on making the unit more profitable.
Ford is also trying to cut costs amid a dismal environment.
The company's sales fell 16 percent in May.
Faced with a continuing plunge in pickup truck and sport utility vehicle sales, Ford Motor said Friday it would delay production of its new F-150 pickup truck and announced other factory cuts.