More than 4,000 production workers at Peugeot's Ryton car plant near Coventry are to go ahead with a ballot for strike action after pay talks between the French group and union leaders broke down yesterday.

Peugeot, which has taken on 700 extra staff and is introducing a fourth daily shift this week, insisted that the two-year deal on offer was worth 7.3% or more than the benchmark 7.1% agreement recently reached by Ford UK. But union officials, who claimed the deal was worth less, said talks collapsed over the plan to raise pension contributions from 4% to 5% by 2004. Peugeot said this was in line with Ford's policy and it had been prepared to delay the timing of the increase.

Duncan Simpson, national officer of engineering union Amicus, said: "It is frustrating that the situation has come to this but the company has left us with no alternative but to ballot for industrial action."

Expressing disappointment, senior Peugeot officials said: "The deal on the table is without doubt the best in the industry." All Ryton staff would enjoy an extra 3% this year under a group profit-sharing scheme - unavailable at Ford.

Employees had also been offered from next year a share-buying scheme under which Peugeot would give one free share for every three bought. Under a car-ownership scheme staff could lease a new car, taxed and insured, for a nominal monthly fee.

The threatened strike action comes at a delicate time for Ryton whose capacity is over-stretched and has been earmarked for a £250m refit - provided the government increases the state aid on offer.

Its troubles contrast with BMW's Mini plant at Oxford, which is likely to surpass its sales target of 140,000 units this year after selling 134,000 in the first 11 months of the year.