Peugeot to shut plant, to cut 14,000 jobs

First auto factory to close in France in 30 years

PSA Peugeot Citroen, Europe’s second-biggest car maker, will close the first auto factory in France in 30 years and eliminate 14,000 jobs in an effort to stem widening operating losses.

The automaker will cut an additional 8,000 positions in the current reorganisation, on top of 6,000 job reductions already announced last year, Chief Executive Officer Philippe Varin said on Thursday at a press conference in Paris.

The manufacturer, Renault SA and Fiat SpA have posted the biggest sales declines this year in Europe, where Peugeot now expects the market to contract 8 per cent. Moody’s Investors Service in March was the last of the three main credit-reporting companies to cut Peugeot’s debt rating to junk. Peugeot’s first- half deliveries slumped 13 per cent.

 

“Peugeot is more exposed to south European countries and France in particular, which partly explains the poor sales performance,” said Sascha Gommel, analyst at Commerzbank AG with a hold recommendation on the stock. “But more broadly speaking, it seems to be stuck in the middle between Volkswagen at the top of the market, and Hyundai/KIA at the bottom.”

Peugeot rose as much as 33 cents, or 4.6 per cent, to euro 7.48 and was trading up 3.1 per cent as of 11:17 am in Paris. That pared the decline this year to 30 per cent, giving the company a market value of euro 2.6 billion ($3.2 billion).

The company will shut its 39-year-old factory in Aulnay in 2014 and lower production at a plant in Rennes to slash operational costs, it said. The last French auto factory to close was a Renault plant in 1982, according to Francois Roudier, spokesman for the country’s automakers’ association.

Peugeot’s first-half operating loss in the automotive unit will hit euro 700 million, the carmaker said on Thursday.

“I am fully aware of the seriousness of Thursday’s announcements as well as of the shock and emotions that they will arouse,” Varin said in a statement. “The depth and persistence of the crisis impacting our business in Europe have now made this reorganisation project indispensable in order to align our production capacity with foreseeable market trends.”

General Motors Co last month announced plans to shutter the first German car factory since World War II. Fiat CEO Sergio Marchionne said last week that he may close a second Italian plant after shutting a factory in Sicily unless the automaker can use excess capacity to build cars for North America.

Peugeot had 209,019 workers worldwide at the end of last year. That included 100,356 people on permanent and temporary contracts in France. Payroll cutbacks from the reorganization announced on Thursday include 3,000 jobs at Aulnay, 1,400 at Rennes and 3,600 non-factory positions.

About half the workers at the Aulnay factory will likely be offered positions at a Peugeot plant in Poissy, Denis Martin, the company’s operations director, said at Thursday’s press conference.

“Peugeot cannot be called a family group anymore; it has lost all its values,” said Franck Don, head of the CFTC union. “In 25 years of work at Peugeot I haven’t seen anything like this.”

The French company entered into a strategic alliance with GM earlier this year in which the American carmaker took a 7 per cent stake to become the second-largest shareholder after the founding family. The two plan to cooperate on purchasing and vehicle development to help lower costs.

The carmaker, which has been burning about euro 200 million in cash monthly since the middle of last year, has a target of restoring operating cash flow to a break-even level by the end of 2014, Peugeot said.

“It’s hard to say if it’s enough,” Commerzbank analyst Gommel said. “It’s difficult to calculate the financial impact of the plan at this point,” as questions remain about whether some of workers will be assigned to other sites.

Industrywide deliveries in the European Union will probably fall to 12.2 million vehicles this year, the least since 1995 and 21 per cent below the 2007 peak, according to ACEA figures. Renault sales chief Jerome Stoll yesterday scrapped the carmaker’s sales-growth target for 2012 and said the European market may not recover to pre-crisis levels until 2018.

Renault yesterday reported a 3.3 per cent drop in first-half sales as gains outside its home region were unable to offset the region’s slump.

The first-half capacity utilisation rate at Peugeot’s factories dropped to 76 per cent from 86 per cent a year earlier, the automaker said on Thursday. Overcapacity in Western Europe may more than double to about 2 million vehicles in 2012, according to IHS Automotive. Peugeot Chief Financial Officer Jean-Baptiste de Chatillon said in March that Europe’s auto market probably won’t recover for years to come.

Peugeot also sold euro 1 billion in new stock to existing shareholders this year and has announced asset sales to raise cash and lower its debt load. Peugeot is planning to sell a majority stake in its profitable Gefco trucking unit, Luc Nadal, the unit’s chief, said this week. Peugeot aims to complete the sale by October, he added.

Asset disposals thus far have included the Citer vehicle- rental unit that the carmaker sold to Enterprise Holdings Inc. on Feb. 1 for euro 440 million and an agreement announced April 2 to sell Peugeot’s 48-year-old headquarters building in Paris to Ivanhoe Cambridge for euro 245.5 million.