Peugeot to Cut Added 1,500 Jobs as European Sales Plunge

Peugeot to Eliminate Additional 1,500 Jobs as Europe Sales Drop
Peugeot has been depleting cash reserves in the last year at a rate of 200 million euros per month. Photographer: Alexander Zemlianichenko Jr./Bloomberg

PSA Peugeot Citroen, Europe’s second-largest carmaker, will eliminate an additional 1,500 jobs by 2014, deepening its workforce reduction as auto sales in the region plunge to a 17-year low.

The cuts, which come on top of 8,000 announced in July, will be made by not replacing people who leave, Jonathan Goodman, a spokesman for the Paris-based company, said. The shares gained the most in almost five months.

Peugeot in total is now aiming to shrink its French automotive operations by 11,200 positions, or 17 percent, over the next two years. The automaker is also closing a factory on the outskirts of Paris, selling assets and negotiating a strategic alliance with General Motors Co. as Europe’s auto market drops this year to the lowest sales volume since 1995.

“Whatever happens, the company will continue to suffer from overcapacity at least until 2015,” said Florent Couvreur, an analyst at CM-CIC Securities in Paris who recommends selling the shares. “The most difficult year for PSA will be 2013 and not 2012 because in 2012 they still had some assets to sell.”

Peugeot is selling a 75 percent stake in its Gefco trucking unit to OAO Russian Railways for 800 million euros ($1.04 billion) and has also sold its headquarters in Paris.

Workers were told yesterday that the number of employees that the automaker has in France will drop to 55,900 in 2014 as a result of the latest round of cuts, Christian Lafaye, the leader of the FO union, said in an interview. The total headcount reduction in the next two years includes 1,700 cuts announced in 2011 that haven’t been fully implemented, spokesman Jean-Baptiste Mounier said by phone.

Shares Surge

The shares surged as much as 40 cents, or 8.1 percent, to 5.33 euros, the biggest intraday gain since Jul. 19, and were up 6.4 percent as of 10:30 a.m. in Paris trading. The stock has dropped 50 percent this year, valuing the automaker at 1.86 billion euros. Volkswagen AG, Europe’s largest carmaker, has gained 54 percent in 2012, giving the German company a market capitalization of 76 billion euros.

Peugeot, which has been depleting cash reserves in the last year at a rate of 200 million euros per month, said in October that net debt at the end of 2012 will total about 3 billion euros, versus a prediction in July of 2.5 billion euros. Moody’s Investors Service cut Peugeot’s long-term debt rating to three levels below investment-grade on Oct. 10, adding pressure on its banking unit, Banque PSA Finance.

Loan Guarantees

France’s government stepped in on Oct. 24 to bail out Peugeot, guaranteeing as much as 7 billion euros in new bonds in exchange for greater influence over company strategy. France’s National Assembly late yesterday voted in favor of the guarantees and the measure should be fully adopted on Dec. 19, according to the parliament’s website.

The automaker needs the French state backing for the banking unit to keep down borrowing costs and offer customers competitive financing rates.

Competitors are also cutting back. GM announced this week that it will shutter a factory in Germany as a result of the region’s plunging sales, threatening 3,100 jobs. The shutdown, the first of a car factory in the country since World War II, is part of Detroit-based GM’s efforts to end losses by 2015 in Europe, where it’s forecasting a deficit of as much as 1.8 billion in 2012.

Ford Motor Co. intends to shut three European plants, one in Belgium and two in the U.K. The Dearborn, Michigan-based company is forecasting European-division losses totaling $3 billion this year and next, and doesn’t expect a profit in the region before the middle of this decade.

Factory Closings

Fiat SpA closed a car plant on the Italian island of Sicily in late 2011. The Turin-based manufacturer, which is forecasting a loss at its European operations of 700 million euros this year, said last week that it will cut 1,500 jobs in Poland.

Peugeot is working on the details of the strategic alliance with GM, which is now the French automaker’s second-largest shareholder, to build vehicles together and jointly purchase parts and supplies.

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