Peugeot sets stage for cuts with Fiat venture exit

PARIS Wed Jul 11, 2012 2:52pm EDT

The Logo of French carmaker Peugeot is seen on a car in Paris January 13, 2009. REUTERS/Charles Platiau

The Logo of French carmaker Peugeot is seen on a car in Paris January 13, 2009.

Credit: Reuters/Charles Platiau

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PARIS (Reuters) - PSA Peugeot Citroen (PEUP.PA) struck a tentative deal with Fiat to end their Sevelnord delivery-truck venture, part of broader restructuring moves to be outlined to the French automaker's unions on Thursday as it tackles mounting losses.

Italy's Fiat (FIA.MI) will sell its half of the plant in northern France to Peugeot by the end of 2012 but keep a share of its production for another four years, under the draft agreement between the companies.

The move - backed by demands for wage concessions and more flexibility from workers - was announced as Peugeot Chief Executive Philippe Varin prepared to brief the company's works council on new cuts expected to include thousands of job losses and the closure of its Aulnay plant near Paris.

"It won't come as any surprise when they announce the end of production at Aulnay," said Christian Lafaye, an official with the Force Ouvriere union.

"But the cuts are likely to be felt much more widely - every site will be affected."

Peugeot is faring worse than other carmakers with its brands' heavy exposure to southern European countries badly hit by the region's debt crisis, as well as their shrinking share of markets including France. Domestic competitor Renault (RENA.PA) has been supported in Europe by its low-cost Dacia marquee, while Germany's Volkswagen (VOWG_p.DE) boasts strong demand in China and a resilient home market.

Peugeot, said last week first-half global sales of light vehicles dropped 13 percent to 1.62 million. This contrasts with a more modest 3.3 percent sales decline reported by Renault on Wednesday and a 10 percent gain in first-half deliveries of the VW brand revealed earlier this week.

The Paris-based company's core auto division swung to a loss last year and has deteriorated since, with losses expected to reach 500 million euros ($612.47 million) this year, according to consensus estimates cited by Credit Suisse.

The Paris-based automaker is already pursuing 6,000 job cuts as part of a 1 billion euro savings programme and is likely to raise the objective to as many as 10,000 positions, unions fear. Aulnay alone employs some 3,300 workers to assemble Citroen's C3 subcompact.

Peugeot declined to comment on its restructuring plans ahead of the meeting with staff representatives.

Shares in Peugeot have plunged 32 percent this year, wiping 1.2 billion euros off its market value. General Motors (GM.N) bought a 7 percent Peugeot stake in March as part of a far-reaching alliance plan announced the previous month.

Peugeot executives had already outlined plans to close Aulnay in a document leaked to unions in June 2011 - while warning that an announcement would be impossible before French elections which ended last month.

"The closure of Aulnay is more than priced-in - we've been waiting for it for over a year now," said London-based UBS analyst Philippe Houchois. "If that's all they do, the stock goes down."

Workers at Sevelnord, which assembles the Peugeot Expert, Citroen Jumpy and Fiat Scudo commercial vans, were asked in May to agree to a pay freeze, hundreds of job cuts and other concessions or face possible closure.

As the clouds gather, Peugeot must tread carefully to reassure France's new Socialist President Francois Hollande that it is doing all it can to minimize job losses.

Labour Minister Michel Sapin said that Peugeot's announcement on Thursday would just be the start of a long negotiating process with unions and the government.

"They will have to move position, to evolve, based on negotiations with social partners," he told BFM-TV.

Industry Minister Arnaud Montebourg, meanwhile, promised the government stood ready to help save jobs.

"Tomorrow, PSA will announce decisions which are not happy ones. It will be a shock for the nation," he told a conference. "The company needs to be defended and its employees supported at this difficult time. Tomorrow, based on Peugeot's announcement ... the government will take a constructive position so the nation can solve this auto problem."

Investors are also wary of the government's response to the imminent restructuring.

Ministers should "let Peugeot shut down (production) in peace if they need to, in exchange for investment commitments to make other sites sustainable," UBS's Houchois said. ($1 = 0.8164 euros) (Additional reporting by Lionel Laurent and Gilles Guillaume; Editing by Jon Loades-Carter)

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