Peugeot Pledges French Investment in Exchange for Pay Cut

PSA Peugeot Citroen (UG) pledged to increase French production and investments over the next three years in exchange for concessions from unions such as a salary freeze and reduced overtime pay.

Europe’s second-largest carmaker will spend 1.5 billion euros ($2 billion) to upgrade French factories through 2016 as part of plan to raise output 7.5 percent to at least 1 million autos, the Paris-based company said in a statement today. Peugeot also vowed to build at least one new model in each of its five French assembly plants in the coming three years, helping to maintain work at components plants and foundries.

Peugeot, which reported a first-half operating loss of 510 million euros in its automotive division, started talks with unions in May after agreeing on a cost-reduction plan that includes the elimination of 11,200 jobs by 2015 and the closing of a factory on the outskirts of Paris. Peugeot is offering not to shut any additional French plants in the next three years as part of the latest negotiations.

“This is the minimum we were asking for,” said Anne Valleron, one of two employee representatives on the company’s board. “But this is not sufficient. We still need to discuss all the details of these very broad proposals and see what will be their actual impacts on jobs in each factory.”

Shares Rise

The shares gained as much as 10.5 cents, or 0.8 percent, to 12.70 euros and were up 0.3 percent as of 5:02 p.m. in Paris trading. The stock has more than doubled this year, valuing the auto manufacturer at 4.48 billion euros.

The talks between Chief Executive Officer Philippe Varin and labor leaders are aimed at improving the competitiveness of the automaker’s French factories and bring their utilization rate to 100 percent in 2016 from 61 percent in the first half. The manufacturer agreed to maintain 75 percent of research and development in the country through 2016 if a deal is reached.

Today’s meeting was the 12th between the two sides over topics spanning from working conditions to overtime pay and salaries. Peugeot is asking unions to cut additional overtime pay by 20 percent to 25 percent and to freeze salaries in 2014.

Peugeot employed 76,136 people in its automotive division in France at end of 2012, representing 65 percent of its automotive workforce. The carmaker aims to sell more than 50 percent of its vehicles outside Europe by 2015 and has added production in China, Russia and Latin America.

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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