The rating on €1.2 billion of debt backed by the government was unaffected by the downgrade Tuesday, Moody's said. Peugeot, the second-largest European automaker after VW, has more manufacturing capacity than it can profitably employ. It posted a 2012 annual loss of €5 billion, mainly after writing down the value of its automotive assets, while revenue slid 5.2 percent, to €58.4 billion. The company's sales in the 27-nation European Union fell 14.8 percent in the first two months of 2013 from a year earlier, outpacing the 9.5 percent in the overall market. That has left it burning cash and seeking to diversify outside of the region. The cut on Tuesday became inevitable after Moody's on Thursday downgraded the parent company by one step to B1 from Ba3, two notches below the finance unit. The agency pointed to "worse-than-anticipated financial performance," as well as "negative free cash flow from industrial operations and ongoing challenges to restructure its automotive operations."