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Peugeot defends job cut plan after slumping to H1 loss
July 25, 2012 / 10:35 AM / 5 years ago

Peugeot defends job cut plan after slumping to H1 loss

PARIS (Reuters) - PSA Peugeot Citroen (PEUP.PA) vowed to press ahead with politically fraught restructuring plans as the troubled French automaker detailed mounting losses it has described as a threat to its future.

Europe’s second-largest car maker posted a 662 million euro ($800 million) first-half loss in its auto division, dragging its group bottom line into the red - as it had warned earlier this month when announcing 8,000 French job cuts and a plant closure.

“The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganisation,” Chief Executive Philippe Varin said on Wednesday. “We have a clear understanding of how hard this project is for a large number of our employees.”

Presenting the results as executives sought to push through a 10 percent French workforce reduction in talks with unions, Peugeot said the cutbacks would help generate 1.5 billion euros in savings by 2015.

Close to 2,000 Peugeot staff gathered in front of Peugeot’s Paris headquarters to protest against the cuts, having marched past the Arc de Triomphe monument setting off smoke flares, banging metal drums and bringing traffic to a standstill.

“This plan is unacceptable and unjustified,” said Jean-Pierre Mercier, of the CGT union. “PSA’s attack on jobs concerns all the group’s sites.”

The redundancies, combined with the closure of the Aulnay plant near Paris and 6,000 European job cuts announced last year, will generate 600 million euros in savings for 2015, Peugeot said.

The company also pledged to cut 550 million euros of investment and generate a further 350 million through cooperation with alliance partner General Motors Co (GM.N).

Peugeot said it burned through 954 million euros of operating cash in the first six months of the year as sales fell 5.1 percent to 29.55 billion.

GOVERNMENT TEST

Its net loss of 819 million euros compared with a year-earlier profit of 806 million. Asset sales reduced net debt to 2.4 billion euros from 3.4 billion at the end of December.

Unveiling the reorganisation on July 12, CEO Varin had said any further delay “would have put the group in great danger”.

But the Aulnay closure decision, a key part of the plan, had been leaked more than a year ago and denied at the time by Varin - sparking government accusations that he had lied to workers and the public.

Socialist President Francois Hollande’s two-month-old government is being tested by its first industrial crisis as unions vow to wage war over Aulnay and the job cuts.

The government will present a modest aid plan for the flagging auto industry on Wednesday, limited mainly to raising subsidies on electric vehicles.

Much less ambitious than a 2008-09 auto sector package under the last government, which included a popular cash-for-clunkers scheme, the plan will increase cash incentives for buyers of fully electric cars to 7,000 euros from 5,000, according to a document seen by Reuters.

Subsidies on hybrid cars, made in France by Peugeot but also by Toyota (7203.T), will double to 4,000 euros.

The plan will also free up 150 million euros in state-backed loans to auto industry sub-contractors, hit hard by the slowdown, and oblige the government to make a quarter of its car purchases electric or hybrids.

Toyota produces its hybrid Yaris model in France, but the subsidies would also benefit Japan’s Mitsubishi (7211.T), which makes Peugeot and Citroen’s small electric cars.

GLOOMY OUTLOOK

Peugeot shares were 3.8 percent higher at 1006 GMT, paring the stock’s 41 percent plunge so far this year, the biggest decline in the 15-member STOXX Europe 600 autos and parts index .SXOAP.

Peugeot’s latest savings goal follows 4.7 billion euros of earnings improvements announced by Varin since he joined Peugeot in 2009, London-based Credit Suisse analyst Erich Hauser said.

“If you’re delivering on these and still losing money like there’s no tomorrow, it doesn’t really inspire a lot of confidence,” Hauser said. “The ball is in the French government’s court now.”

Europe’s gloomy economic outlook does not bode well for Peugeot, which now expects the regional market to shrink by 8 percent in 2012, a bigger contraction than the 5 percent predicted at the start of the year.

European car sales may not return to pre-crisis levels until 2017, Renault warned this month. The slump has already seen Peugeot lose ground to competitors including market leader Volkswagen AG (VOWG_p.DE) and Korea’s Hyundai Motor Co (005380.KS).

The Peugeot and Citroen brands’ combined European car market share fell 1 point to 12 percent in the first half, when their global sales also tumbled 13 percent to 1.62 million vehicles.

The French automaker has warned it will continue bleeding cash through 2014. To stem the losses, it has already cut some investments and sold its Paris headquarters on a lease-back deal. Other assets on the block include a large stake in logistics division Gefco.

Among halted investments are an Indian plant, a dual-clutch gearbox and a rechargeable diesel-electric hybrid vehicle. Peugeot has said it hopes to fill some of those gaps through cooperation with GM under the broad-based alliance they unveiled in February.

Additional reporting by Gilles Guillaume; Editing by James Regan and David Holmes

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