the remaining ones will work hard in fear that if I don't work harder I may be the next
Much more likely that the remaining ones will think "better jump, before I get pushed".
And, the best of them will find it easiest to find new jobs with other companies.
That's the way that it normally plays out when redundancies start. Add the knowledge that the company is in financial trouble and orderly exit can become a stampede.
So, getting rid of a few "pour encourager les autres" is unlikely to have a happy ending
(and Let them hate me, so long as they fear me didn't turn out too well either ;-)
(and and - I don't know how I forgot this one, but thanks, @JSON for your comment "the beatings will continue until morale improves" :-)
This issituation is how I got into contracting. My MNC company lost a major contract and laid off only three of over a hundred developers (the correct figure would have been none). One of them found a contract position, told us how much more he was earning and the rush for the door began. Three continents and fifteen countries later, I do not regret joining the rush :-)