Peugeot Reaches Deal With Unions to Cut Production Costs

PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, reached a deal with labor leaders to reduce fixed costs at French factories, a key step as it looks for new partners to expand and shore up its finances.

Unions representing more than 60 percent of workers signed an agreement to freeze salaries in 2014 and reduce overtime pay in exchange for investment guarantees and new models, the Paris-based company said in a statement. Two unions backed by 36 percent of Peugeot employees in France rejected the proposal.

The French manufacturer confirmed that the plan will yield about 125 million euros ($173 million) in annual savings starting next year.

“The agreement’s balanced efforts will help make us more competitive and contribute to improved profitability in Europe,” Chief Executive Officer Philippe Varin said in the statement.

The French automaker is considering a capital increase of at least 3 billion euros to raise money for development spending and to expand outside Europe, two people familiar with the matter said this week. The new labor deal was a critical step for Peugeot in its effort to attract potential investors.

The manufacturer has agreed not to shut additional French plants in the next three years and add a new model at each of five locations to boost capacity utilization to 100 percent in 2016 from 61 percent currently. Peugeot is already eliminating 11,200 jobs and will close a factory near Paris tomorrow.

Dongfeng Partnership

Under the plan, Peugeot will cut overtime pay by 20 percent to 25 percent and freeze salaries next year in its French automotive operations, which employed 76,136 people at end of 2012 or 65 percent of its global production workforce.

The manufacturer said yesterday that it was reviewing whether to back away from parts of broader alliance with General Motors Co. (GM), a move that could open the door to a deeper partnership with Dongfeng Motor Corp. (489) in China.

Dongfeng and the French state are considering taking equal stakes of about 20 percent in the capital increase, the people said. Dongfeng would offer Peugeot opportunities to boost profit through expansion in China, whereas the GM alliance is focused on cost reductions in the shrinking European market.

Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros, reiterated yesterday a target to cut cash consumption by at least 50 percent this year after burning through 3 billion euros in 2012. Third-quarter sales dropped 3.7 percent to 12.1 billion 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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