PARIS—Investors abandoned Peugeot SA in droves Friday, driving its share price to its lowest level in over a quarter century, as a potential credit downgrade and a worsening outlook for the European car market overshadowed the company’s plans to shed 8% of its French workforce.

Moody’s Investors Service Inc. warned Friday that it will study a possible lowering of Peugeot’s debt rating because of the worsening cash position at the car maker despite its announcement Thursday that it will cut 8,000 jobs out of roughly 100,000 in France to stem losses at its automotive division.

Evidence mounts that the European car market—where Peugeot is focused—may get even worse. Ford Motor Co. said Friday that European sales in the first half of 2012 were at their lowest level since 1994. And No. 1 European car maker Volkswagen AG said it expects the European car market to see greater challenges in the latter half of the year.

“The economic situation, particularly in Western Europe, remains tense and difficult”, Volkswagen sales chief Christian Klingler said.

Peugeot shares fell 7.7% on Friday, closing at €6.48, their lowest level since the mid-1980s, according to data from FactSet. Peugeot’s shares have lost 79% of their value in the last year.

The share decline compounds the woes for Peugeot, which is perhaps the hardest hit in Europe’s automobile crisis. Overall auto sales in the region have fallen for four straight years and are on track for another decline in 2012. The weak demand has left many auto makers with far more assembly plants and workers than they need. But powerful labor unions and most European governments have long fought any efforts to close factories.

Against that backdrop, many analysts say Peugeot’s proposed cuts don’t go far enough to tackle its problems—including a cash burn of €200 million ($245 million) per month. The company faces a long turnaround road following years of strategic missteps, such as being late to the luxury-car market.

Closing a major plant—while provoking outcry in France—will save only €100 million to €200 million a year, and will involve significant restructuring costs first, analysts said. By contrast, the company said its automotive business lost roughly €700 million in the first half.

“You’ve made a very small cut, for what appears to be a very large problem,” said Michael Tyndall, an analyst at Barclays Capital. “It’s difficult to see how in the current environment they can turn things around.”

On Friday, Peugeot’s chief executive called for a massive cut in the labor costs that companies in France have to bear, as the family-controlled auto maker tries to influence pending government proposals to support the sputtering auto industry.