PSA Peugeot Citroen is writing down the value of its assets by 4.1 billion euros ($US5.5 billion) to reflect the worsening state of the car market.
Global sales at the company fell 16% in 2012 to less than three million.
The French car maker said new accounting guidelines had prompted the move and that it was reversible when conditions improve.
The BBC reports heavy losses are expected when the company issues its earnings report next week.
Peugeot is in the process of cutting 8000 jobs and closing a factory to stem losses.
A report in the Liberation newspaper said the government was examining the possibility of buying a stake in the company as a "last-resort plan".
Initially, this appeared to be backed up by Budget Minister Jerome Cahuzac, who said it was "possible". But this was later denied by the Economy and Finance Minister, Pierre Moscovici.
Peugeot, a founding member of the CAC-40 stock market index, was demoted last year as a result of its tumbling share price.
