Some 850 shop staff will lose their jobs, together with another 150 at the company's head office in Basingstoke, Hampshire.

The BBC's Stephen Evans: 'It's now a big, fierce industry'

The motoring organisation said staff would be offered other jobs where possible, but compulsory redundancies were not being ruled out.

It said the expansion of companies such as Direct Line had had a "big impact" on its insurance business.

The AA now plans to concentrate on its core roadside breakdown assistance service and has ended its insurance underwriting venture with Eagle Star.

The AA's Home Assistance service - which deals with non-car breakdowns - has also been sold off.

Strategic move

BBC Industry Correspondent Stephen Evans: 'The AA is sharpening up its act'

The changes to the 103-year-old organisation follow a strategic review ordered last year by AA director general John Maxwell.

Mr Maxwell said: "We are totally committed to improving service in our roadside business.

"This must involve improving our cost efficiency and adapting our business to meet the changing demands of our members.

"This year we are putting an additional £20m into roadside assistance."

The AA currently employs 12,667 people, including 3,500 patrolmen and patrolwomen.

Growing competition

AA Director General John Maxwell explains why the cuts are necessary

The new approach also comes at a time when the AA, with 9.4m members, faces increasing competition in the breakdown service market.

American company Cendant has already taken over breakdown company Green Flag and is poised to buy the RAC's motoring services.