Jean-Martin Folz, Peugeot's chief executive, yesterday cast renewed doubt over the future of the French car group's Ryton plant near Coventry by postponing for a year a decision on a crucial £250m investment.

On the eve of a one-day strike by Ryton's 3,900 production workers over pay, Mr Folz made plain Peugeot's refusal to increase its pay offer, worth 7.3% over two years, and criticised unions for calling a strike.

Announcing a near-10% rise in group operating profits last year to ;2.9bn euros (£1.9bn), Mr Folz said in London: "The strike is not good news for the overall opinion we have of the Ryton plant ...

"We do not understand the dispute when we have made the best pay offer in the British car industry."

Peugeot has been pressing the government - unsuccessfully - for significant state aid to rebuild substantial parts of the Ryton plant, including the paint shop, to increase capacity for a proposed new car to replace the best-selling 206.

Ryton, which is bursting at the seams, produced about 200,000 cars last year and took on a fourth shift last autumn to raise output to a potential 230,000. It had hoped to be in prime position to build a new car.

Mr Folz said the Peugeot board had been due to decide on any new investment, including the £100m paint shop, in the first half of this year but had put this off until the first six months of 2004.

Ryton, which produces the new 206 estate, has also been hit by the strong pound which knocked Peugeot's operating profits by 42m euros last year. Mr Folz said the plant would be used "for longer than expected" to meet demand for the 206.

The renewed threat to Ryton emerged as Mr Folz admitted that the European car market could fall by up to 2% this year "excluding any major economic turmoil from international events".

He said that, in "an absolute nightmare scenario" caused by a prolonged Iraqi war, the slump could be as much as 10-13% - similar to the effect of the oil crises of the 70s and 80s.

The French group plans to sell 3.35m cars this year, boosting operating profits to as much as €3.1bn and margins, which are now at 5%, to as high as 5.2% thanks to cost-cutting, expansion outside Europe and new models.

Mr Folz said the plans were "ambitious but realistic" despite the economic uncertainties. "We feel we will be able to resist better than our competitors what could be the worst possible crisis ... We can easily reduce output without increasing costs."