PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, will shut the first auto factory in France in 20 years and reduce its workforce by 6.7 percent in an effort to stem widening operating losses.
The automaker will cut a total of 14,000 jobs, with 8,000 additional positions being eliminated on top of the 6,000 posts already announced last year, Chief Executive Officer Philippe Varin said today at a press conference in Paris.
French Prime Minister Jean-Marc Ayrault called the factory closing and workforce reductions a “true shock” for employees. Peugeot, Renault SA (RNO) and Fiat SpA (F) have posted the biggest sales declines this year in Europe, where Peugeot now expects the market to contract 8 percent. Moody’s Investors Service in March was the last of the three main credit-reporting companies to cut Peugeot’s debt rating to junk.
“The plan was necessary and will allow Peugeot to reach operational breakeven but it won’t go beyond that,” said Florent Couvreur, an analyst at CM-CIC Securities in Paris who recommends buying the shares. “It will just allow Peugeot to stop the cash burn.”
Peugeot dropped 12 cents, or 1.7 percent, to 7.02 euros in Paris trading today. The stock has plunged 73 percent in the last year, giving the carmaker a market value of 2.49 billion euros ($3 billion) or just 4.3 percent of 2011 revenue.
The carmaker, which has been consuming about 200 million euros 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.
The French company will stop production at its 39-year-old factory in Aulnay, on the outskirts of Paris, in 2014 and focus the building of small cars at a nearby plant in Poissy, it said. Peugeot will also lower production at a plant in Rennes to slash operational costs.
The last French auto factory to close was a Renault plant in 1992, according to Francois Roudier, spokesman for the country’s automakers’ association. Renault confirmed the date.
“I am aware of the painful nature of this decision,” Varin said at today’s press conference. “The markets currently are experiencing a brutal, wide and on-going decline.”
Peugeot’s first-half operating loss in the automotive unit will hit 700 million euros compared with a profit of 405 million euros a year earlier, the carmaker said today. The measures announced today will help “strengthen” a plan to cut 1 billion euros in costs in 2012, Peugeot said.
The French company entered into a strategic alliance with General Motors Co. (GM) earlier this year in which the American 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.
GM 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 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.”
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 today 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 the Poissy plant, Denis Martin, the company’s operations director, said at today’s press conference.
Prime Minister Ayrault said in a statement that he’s “paying great attention to the unprecedented plan announced by PSA, which is a true shock for all employees.”
“It’s hard to say if it’s enough,” said Sascha Gommel, an analyst at Commerzbank AG in Frankfurt with a hold rating on the stock. “It’s difficult to calculate the financial impact of the plan at this point.”
Industrywide deliveries in the European Union will probably fall to 12.2 million vehicles this year, the least since 1995 and 21 percent below the 2007 peak, according to ACEA figures.
Peugeot’s first-half deliveries slumped 13 percent compared with a 10 percent increase at Volkswagen AG (VOW)’s namesake brand in the period thanks to gains in China and North America. VW is Europe’s largest automaker. Renault sales chief Jerome Stoll yesterday scrapped the carmaker’s 2012 sales-growth target after reporting a first-half drop of 3.3 percent, and said the European market may not recover to pre-crisis levels until 2018.
The first-half capacity utilization rate at Peugeot’s factories dropped to 76 percent from 86 percent a year earlier, the automaker said today. Overcapacity in western Europe may more than double to about 2 million vehicles in 2012, according to research company IHS Automotive.
“Peugeot still has an issue with overcapacity and is in a worse position than Renault,” said Kristina Church, a Barclays analyst in London with an “underweight/neutral” rating on Peugeot shares. “Peugeot is struggling with the power of Volkswagen, especially on the credit side, as VW benefits from lower costs of financing,”
Peugeot sold 1 billion euros in new stock to existing shareholders this year and plans to sell 1.5 billion euros in asset 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 440 million euros and an agreement announced April 2 to sell Peugeot’s 48-year-old headquarters building in Paris to Ivanhoe Cambridge for 245.5 million euros.
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