PSA Announces Further Restructuring Plans for Domestic Operations

PSA Peugeot-Citroën has announced that it is planning further restructuring at its domestic automotive manufacturing operations as a result of the continued drop-off in demand in the European light-vehicle market during the past five years. The plan has been presented at a meeting of the automakers Central Works Council by the company's chief executive and chairman of its managing board, Philippe Varin. In a statement, the company explained that the continued deterioration of demand, particularly due to its exposure to the Southern European markets, has seen it cut its production levels significantly, and that according to its own figures its capacity utilisation had fallen to 76% during the first half of 2012, from 86% in 2011. It added that the Automotive Division also anticipated further losses during the first half of EUR700 million (USD858.0 million), following on from those already seen in the second half of 2011, and that since mid-2011 the Group had been consuming around EUR200 million per month, excluding non-recurring items, and would see a loss overall for the first half of2012.

As result of this, PSA said that it was considering implementing a project to reorganise its domestic manufacturing operations and redeploy its workforce in order to restore PSA's competitiveness. Measures include:

• Ending production at its Aulnay facility in 2014, and consolidating production of the Citroën C3 built there at the also underutilised Poissy facility which already builds the Citroën C3 and DS3, as well as the Peugeot 208. The company said that there is the potential for 1,500 Aulnay staff to move to other sites, including Poissy, while opportunities will be offered to the remainder in the area surrounding Aulnay. It added that there may also be plan to convert the Aulnay facility to manufacturing or automotive-related activities, including the involvement of PSA, which will be implemented in association with stakeholders.

• An adjustment of headcount at the Rennes plant, which makes the Peugeot 508 and Citroën C5 and C6, which are facing slow demand in the large sedan segment in Europe.

As a result of the foreseeable production cuts, before preparing the site for a new model, PSA intends to redeploy around 1,400 jobs out of the 5,600 employed at the site. It added that it will implement the necessary support measures to help find new jobs for staff, either within the business or local to the site.

PSA said that unions at both sites will be presented with a consultation period for the plan. Workers will also be offered the opportunity for voluntary redundancy until mid-2013.

It also revealed that it intends to reduce its French headcount by around 3,600 to align its corporate structure and cost base with business volumes. These employees will also be offered the possibility of participating in a voluntary redundancy scheme.

This project to reorganise production operations in France and redeploy the workforce is expected to help its operating cash flow to return to breakeven by the end of 2014. It added that this was based on current automotive market conditions and before the impact of the alliance with General Motors (GM) is fully felt.

Separately, the company said it has also presented a proposal to the Central Works Council to transfer Fiat Group Automobiles' (FGA's) stake in their Sevelnord joint venture (JV) facility in Valenciennes (France) to PSA on or before 31 December 2012. This will see production of light commercial vehicles (LCVs) for the two groups continue until Euro VI emissions standards come into effect at the end of 2016.

Outlook and Implications

A further reduction to PSA's French headcount has been on the cards for some time now, along with the prospect of at least one plant closure. However, with no let-up in the market decline and the ongoing negative outflow of cash it has now finally decided to bite the bullet and make an announcement of this magnitude. This move follows one that was announced in late 2011, which would see up to 6,000 jobs removed from its European workforce alongside other measures to shore up its financial situation (see France: 27 October 2011: PSA Formally Announces Cost-Cutting Measures for 2012, to Undertake Brazilian Expansion).

The Aulnay plant has been on the firing line for several years now. Despite the automaker's best efforts to resize the site during recent times, it has been unable to do much to stem the slide in production levels, it having gone from a high of 420,000 units in 2004 to under 136,000 units in 2011. However, while this is partly caused by economic forces outside its control, it has not been helped by the opening of the Trnava (Slovakia) plant that opened in 2006, which builds vehicles on the same platform as the Citroën C3. Indeed, production levels at Trnava have been thought to have been held back from initially proposed levels in order to shield more established plants, most notably in France.

While PSA has emphasised that it will support workers in their redeployment within the business or finding new jobs, this will be of little consolation to unions. Indeed, Agence France-Presse (AFP) cited unions as describing the announcement as a "declaration of war" and an "earthquake". Members of the new Socialist government of François Hollande, brought in partly on a policy of job creation, have also reacted against the plan. Social Affairs Minister Marisol Touraine was quoted by Reuters as telling Europe 1: "We cannot accept something like this… The state is going to look at the company's strategy and what should be demanded in the interests of its workers. This is a study which will take two weeks... There will be a meeting at the end of the month". Such public large-scale job losses will add to the government's difficulties in implementing significant public-sector spending cuts expected in the budget for 2013 and bringing in measures aimed at increasing the country's declining productivity. The announcement comes a day after the completion of a much publicised "social conference" between government representatives, employers' associations and workers' unions, designed to establish a lasting forum in which difficult labour reforms can be discussed and agreed. Despite the government and union backlash, the situation PSA finds itself in is unsustainable and needs to be addressed in this manner if the business is to have a long-term future, or else it will continue to be weakened and leaving open the potential for further, even deeper cuts required in the future.