Europe's second-largest car maker posted a 662 million euro ($800 million) first-half loss in its auto division, dragging its group bottom line into the red - as it had warned earlier this month when announcing 8,000 French job cuts and a plant closure.

"The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganization," Chief Executive Philippe Varin said in a statement on Wednesday. "We have a clear understanding of how hard this project is for a large number of our employees."

Presenting the results as executives sought to push through a 10 percent French workforce reduction in talks with unions, Peugeot said the cutbacks would help generate 1.5 billion euros in savings by 2015.

The company said it burned through 954 million euros of operating cash in the first six months as sales fell 5.1 percent to 29.55 billion.

Its net loss of 819 million euros compared with a year-earlier profit of 806 million. Asset sales reduced net debt to 2.4 billion euros from 3.4 billion at the end of December.

The redundancies, combined with the closure of the Aulnay plant near Paris and 6,000 European job cuts announced last year, will generate 600 million euros in savings for 2015, Peugeot said.

The company also pledged to cut 550 million euros of investment and generate a further 350 million through cooperation with alliance partner General Motors Co (GM.N).

Unveiling the reorganization on July 12, CEO Varin had said any further delay "would have put the group in great danger".

But the Aulnay closure decision, a key part of the plan, had been leaked more than a year ago and denied at the time by Varin - sparking government accusations that he had lied to workers and the public.

Peugeot shares were 2.2 percent higher at 03.11 a.m. EDT, paring the stock's 41 percent plunge so far this year, the biggest decline in the 15-member STOXX Europe 600 autos and parts index .SXOAP.

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Unions were set to protest outside Peugeot headquarters in the west of Paris on Wednesday as Socialist President Francois Hollande's government prepared to unveil a broader auto-industry support plan.

Arnaud Montebourg, the recovery minister heading the initiative, is expected to recommend measures including stronger tax incentives on smaller vehicle categories, where Peugeot, Citroen and Renault (RENA.PA) still lead the domestic market.

The latest savings goal follows 4.7 billion euros of earnings improvements announced by Varin since he joined Peugeot in 2009, London-based Credit Suisse analyst Erich Hauser said.

"If you're delivering on these and still losing money like there's no tomorrow, it doesn't really inspire a lot of confidence," Hauser said. "The ball is in the French government's court now."

Europe's gloomy economic outlook does not bode well for Peugeot, which now expects the regional market to shrink by 8 percent in 2012, a bigger contraction than the 5 percent predicted at the start of the year.

European car sales may not return to pre-crisis levels until 2017, Renault warned this month. The slump has already seen Peugeot lose ground to competitors including market leader Volkswagen AG (VOWG_p.DE) and Korea's Hyundai Motor Co (005380.KS).

The Peugeot and Citroen brands' combined European car market share fell 1 point to 12 percent in the first half, when their global sales also tumbled 13 percent to 1.62 million vehicles.

The French automaker has warned it will continue bleeding cash through 2014. To stem the losses, it has already cut some investments and sold its Paris headquarters on a lease-back deal. Other assets on the block include a large stake in logistics division Gefco.

Among halted investments are an Indian plant, a dual-clutch gearbox and a rechargeable diesel-electric hybrid vehicle. Peugeot has said it hopes to fill some of those gaps through cooperation with GM under the broad-based alliance they unveiled in February.

($1 = 0.8275 euros)

(Additional reporting by Gilles Guillaume; Editing by James Regan and David Holmes)

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