PSA Peugeot Citroen (UG)’s credit rating was cut to four levels below investment grade by Moody’s Investors Service, which said Europe’s car-market contraction puts the auto manufacturer’s plans to restore cash flow at risk.
The long-term rating on Peugeot’s debt was lowered by one step to B1 from Ba3, Falk Frey, a Frankfurt-based analyst at Moody’s, said in a statement today. The outlook is stable, indicating the debt won’t be reduced again soon.
Peugeot, Europe’s second-largest carmaker, is eliminating jobs and closing a factory to end losses as the region’s auto market, already close to a two-decade low in 2012, shrinks for a sixth consecutive year. Fitch Ratings reduced Peugeot debt to four levels below investment grade in February, while Standard & Poor’s Ratings Services has it at three levels into junk status.
“Unless western European market demand recovers strongly in 2014 from anticipated 2013 levels, PSA may be forced to undertake further cost-saving measures beyond the announced restructuring plan,” Frey said.
In a sign of weak demand, Peugeot will halt production at its factory in Rennes in northern France for more than three weeks, spokeswoman Erika Louis-Roy said today by phone. About 4,000 of the plant’s 5,500 full-time employees will be asked to stay at home or do training between April 17 and May 13, she said. The plant makes the full-sized Citroen C5 and Peugeot 508 models and typically builds about 650 cars a day.
Peugeot fell 0.4 percent to 5.84 euros in Paris trading. The stock has gained 6.7 percent this year, valuing the French automaker at 2.07 billion euros ($2.72 billion).
The manufacturer reported a 576 million-euro operating loss for 2012. It’s predicting a drop of 3 percent to 5 percent in Europe’s auto market this year.
Chief Executive Officer Philippe Varin vowed on Feb. 13 to bring the Paris-based carmaker to a break-even level by the end of 2014 through spending reductions and a new strategy that includes moving its Peugeot brand upscale. The reorganization includes closing a car factory on the outskirts of Paris and cutting 11,200 jobs, or 17 percent of its French workforce.
Peugeot has struggled to move forward with its restructuring as some workers try to block the plan. The automaker was in a Paris court today defending its jobs cuts against claims by two unions that the proposal doesn’t respect workers’ rights under French law.
Peugeot said on Feb. 13 that it reduced costs by 1.18 billion euros in 2012, beating its savings target of 1 billion euros. Asset disposals, including a stake in its Gefco trucking unit, totaled 2 billion euros.
The French government stepped in last year to rescue Peugeot’s banking unit by offering guarantees on as much as 7 billion euros in sales of new bonds. The proposal is under review by the European Union, which granted temporary approval in February of French backing for a 1.2 billion-euro debt sale. The automaker has also reached deals on 11.5 billion euros in refinancing for its bank.
To contact the reporter on this story: Mathieu Rosemain in Paris at email@example.com