Peugeot to Cut Jobs, Increase Savings as European Slump Threatens Profits

PSA Peugeot Citroen, Europe’s second-biggest carmaker, will eliminate jobs and intensify a three-year savings drive to defend profitability in the face of a possible European recession, Chief Executive Officer Philippe Varin said today.

The carmaker, based in Paris, may also close its Aulnay plant north of the French capital unless the competitiveness of its domestic operations improves, Varin said in a briefing at the International Motor Show in Frankfurt.

“There are no cost reductions without job cuts,” the CEO said, declining to give precise details. “Europe is facing a period of weak growth or even recession.”

Peugeot is struggling to deliver on a pledge to narrow the profitability gap with Volkswagen AG (VOW) by generating 3.7 billion euros ($5 billion) in additional earnings in 2010 to 2012, with the gain split between cost savings and improved sales. Cuts will now have to be increased to cover most of the target as auto demand and prices fall, Varin said today. He reiterated the 2011 goal of an improvement on last year’s 1.8 billion-euro operating profit.

“I still don’t see how they’re going to get to the 3.7 billion euros or where the savings are going to come from,” said Erich Hauser, a London-based analyst at Credit Suisse. “We had a rough idea in 2009 but if anything since then it’s become fuzzier.”

Peugeot fell as much as 56 cents, or 3.4 percent, to 15.97 euros in Paris trading and was down 0.6 percent as of 11:37 a.m. The stock has fallen 42 percent this year, valuing the company at 3.9 billion euros.

Leaked Document

Presenting first-half results on July 27, Varin had said there were no plans to increase the company’s savings target. “For the moment we’ve got our work cut out to meet that,” he said at the time.

In June, Peugeot confirmed the authenticity of a leaked internal plan to scrap its Aulnay plant in 2014 and cut 3,600 workers, while maintaining that no decision had been made. The factory assembles the C3, the Citroen subcompact scheduled to be replaced in 2014. Executives concluded early in 2010 that no closure announcement was possible until after France’s 2012 presidential election, according to the leaked document.

“The future of Aulnay is guaranteed until 2014, but what happens after that is something we still have to work on,” Varin said today. “We have a problem with competitiveness in France, particularly in this vehicle category, and that problem has yet to be resolved.”

Electric Cars

Moderate sales of Peugeot’s two electric models have reinforced its conviction that battery cars will trail hybrids, Varin said today. The company has predicted a 5 percent global market share for electric cars in 2020, compared with as much as 15 percent for hybrids, which combine electric motors with combustion engines.

The carmaker, which is unveiling the world’s first mass- market diesel-electric car at the Frankfurt show, has recorded 3,000 deliveries of its Peugeot iOn and Citroen C-Zero battery cars since Jan 1, toward a 7,000 full-year target, the CEO said. Peugeot is also going ahead with development of gasoline- electric powertrains for the Chinese market, he said.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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