Peugeot to Shut Plant to Raise Job Cuts to 14,000 Posts

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.

“Peugeot is struggling with the power of Volkswagen, especially on the credit side, as VW benefits from lower costs of financing,” said Kristina Church, a Barclays analyst in London with an “underweight/neutral” rating on Peugeot shares. “More importantly, Peugeot still has an issue with overcapacity and is in a worse position than Renault.”

Peugeot’s first-half deliveries slumped 13 percent compared with a 10 percent increase at Volkswagen AG (VOW)’s namesake brand in the period. VW is Europe’s largest automaker.

Value Drops

Peugeot dropped as much as 11 cents, or 1.5 percent, to 7.04 euros and was down 1.3 percent as of 3:37 p.m. in Paris trading. The stock has plunged 73 percent in the last year, giving the carmaker a market value of 2.5 billion euros ($3 billion) or just 4.3 percent of 2011 revenue.

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.

GM Alliance

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.

‘True Shock’

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.”

The carmaker, which has been burning 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.

“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. Renault sales chief Jerome Stoll yesterday scrapped the carmaker’s sales-growth target for 2012 after reporting a first- half sales drop of 3.3 percent, and said the European market may not recover to pre-crisis levels until 2018.

Rising Overcapacity

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 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.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

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

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Photographer: Balint Porneczi/Bloomberg

PSA Peugeot Citroen Chief Executive Officer Philippe Varin speaks to the media following a news conference to announce the company's job cuts in Paris.

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Photographer: Balint Porneczi/Bloomberg

PSA Peugeot Citroen Chief Executive Officer Philippe Varin speaks to the media following a news conference to announce the company's job cuts in Paris. Close

PSA Peugeot Citroen Chief Executive Officer Philippe Varin speaks to the media following a news conference to... Read More

Photographer: Balint Porneczi/Bloomberg

The PSA Peugeot Citroen logo is seen on display at the company's headquarters in Paris. Close

The PSA Peugeot Citroen logo is seen on display at the company's headquarters in Paris.

Photographer: Balint Porneczi/Bloomberg

PSA Peugeot Citroen Chief Executive Officer Philippe Varin said at today’s press conference, “I am aware of the painful nature of this decision.” Close

PSA Peugeot Citroen Chief Executive Officer Philippe Varin said at today’s press conference, “I am aware of the... Read More

Photographer: Fabrice Dimier/Bloomberg

PSA Peugeot Citroen will close one French factory and reduce output at another plant in the country as the region’s auto sales drop for a fifth straight year. Close

PSA Peugeot Citroen will close one French factory and reduce output at another plant in the country as the region’s... Read More

Photographer: Antoine Antoniol/Bloomberg

Peugeot will close its 39-year-old factory in Aulnay. Close

Peugeot will close its 39-year-old factory in Aulnay.

Photographer: Antoine Antoniol/Bloomberg

An employee inspects a Citroen C3 automobile, produced by PSA Peugeot Citroen, at Aulnay sous Bois PSA production site in Paris. Close

An employee inspects a Citroen C3 automobile, produced by PSA Peugeot Citroen, at Aulnay sous Bois PSA production site in Paris.

Photographer: Antoine Antoniol/Bloomberg

Peugeot will lower production at a plant in Rennes it said in the statement. Close

Peugeot will lower production at a plant in Rennes it said in the statement.

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