PSA faces heavy criticism over closure of Aulnay car plant in France
PSA/Peugeot-Citroen faced mounting criticism in France after it said it would close its Aulnay car plant near Paris as the company struggles with mounting losses.
PSA will shut its 39-year-old Aulnay factory in 2014 and lower production at a plant in Rennes, western France, to slash operational costs. The automaker also said it will eliminate 14,000 jobs.
Bernard Thibault, head of CGT, France's second-largest union, said it will not stand idly by and accept the plan. "We are not going to take for granted the brutal suppression of tens of thousands of jobs in our country," he told France Inter radio.
PSA said it would post a net loss in the first half and a 700 million-euro ($857.5 million) operating loss for the core carmaking division. Its manufacturing operations are burning 200 million euros a month, with cash flow not expected to turn positive until 2015, the company said.
PSA CEO Philippe Varin said the automaker will unveil a plan to reduce capital expenditure when it presents financial results on July 25. He said that its restructuring plan was the only option to safeguard the PSA's future. "The group is facing a commercial tsunami in Europe and we're at the epicenter," Varin said. "I am absolutely determined to push through the plan, it's the only path possible for the group."
Varin said the possibility of the French government taking a stake in the carmaker's capital was not an issue.
Out of options
Erich Hauser, a London-based auto analyst with Credit Suisse, said: "People were not expecting them to consume cash at such an alarming rate for such a long time. This is a company that has run out of options," he said. "PSA has lost the plot in European small cars, which were its traditional mainstay," Hauser added.
PSA must tread carefully to convince the French government that the Aulnay closure and job cuts are a necessary response to the crisis.
Aulnay will be the first car plant to cease production in France for 20 years, posing a challenge to new Socialist President Francois Hollande's objective of reviving industrial production.
Social Affairs Minister Marisol Touraine said the job cuts were "unacceptable" from a company that had benefited from billions of euros in state support to the auto sector in recent years.
But a statement from Prime Minister Jean-Marc Ayrault's office did not challenge the closure decision. It said the government would verify that PSA delivered on a promise to help find jobs for the thousands of workers it is laying off.
The Aulnay factory built 135,787 units of the Citroen C3 subcompact last year, according to PSA figures. C3 production will move to PSA's Poissy plant, west of Paris, which builds the Peugeot 208 subcompact.
PSA said Aulnay and Poissy are currently working below their capacity. "To ensure satisfactory capacity utilization, plans must now be made to consolidate production at a single plant," the company said.
Aulnay employs more than 3,000 workers.
The Rennes plant, which builds the Citroen C5, C6 and Peugeot 508 mid-sized vehicles, will shed 1,400 of its 5,600 jobs as the factory downsizes in response to shrinking demand for larger cars, PSA said.
The first-half capacity utilization rate at PSA's factories dropped to 76 percent from 86 percent a year earlier, PSA said today.
PSA's passenger-car sales in the EU and EFTA markets fell 15 percent to 675,323 in the first five months in a total market down 7.3 percent, according to industry association ACEA.
PSA "is more exposed to south European countries and France in particular, which partly explains the poor sales performance," said Sascha Gommel, an analyst at Commerzbank. "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."
PSA entered into a strategic alliance with General Motors Co. earlier this year in which the U.S. carmaker took a 7 percent 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.
PSA also sold 1 billion euros in new stock to existing shareholders this year and has announced asset sales to raise cash and lower its debt load. PSA plans to sell a majority stake in its profitable Gefco logistics unit, Luc Nadal, the unit's chief, said this week. The company 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 440 million euros and an agreement announced April 2 to sell PSA's 48-year-old headquarters building in Paris to Ivanhoe Cambridge for 245.5 million euros.
PSA's stock has tumbled 73 percent in the last year, valuing the carmaker, which posted 59.9 billion euros in revenue last year, at 2.54 billion euros. The shares have traded around a 23-year low for most of the last month, with investors concerned about an accelerating drop in deliveries.
Reuters and Bloomberg contributed to this report