Insight: Peugeot faces tough fight over plant closure

PARIS Wed Aug 15, 2012 3:02am EDT

Employees of PSA Peugeot Citroen demonstrate in front of the company's plant in Aulnay-sous-Bois near Paris July 12, 2012. REUTERS/Jacky Naegelen

Employees of PSA Peugeot Citroen demonstrate in front of the company's plant in Aulnay-sous-Bois near Paris July 12, 2012.

Credit: Reuters/Jacky Naegelen

PARIS (Reuters) - When U.S. carmakers slashed production capacity in exchange for government rescue four years ago, workers faced up to change. Though unions bargained hard for existing employees, they agreed to factory closures and cuts in wages and benefits for new hires. Thousands of workers accepted redundancy payouts and moved on, without a huge outcry.

In Europe it's different. In July, after workers at French carmaker PSA Peugeot Citroen learned of company plans to close a plant in the suburbs of Paris, union leader Jean-Pierre Mercier went on the attack. Within hours he was calling for a "shock campaign" to force PSA Chief Executive Philippe Varin to keep the plant open.

"We have the power to make Peugeot back down, to preserve our jobs," Mercier, head of the hard-line CGT union at the factory targeted for closure, told a crowd gathered by its gates. "We are a political bomb, a social bomb, and we intend to detonate."

The union is planning a long-term campaign of protest, including marches on the company headquarters, to keep the plant open, no matter the cost to the company. Other unions are more intent on extracting hefty redundancy terms for workers.

The battle in Aulnay-sous-Bois may be the first of many across Europe. European carmakers such as Peugeot, General Motors' Opel division and Fiat in Italy say they are finally ready to deal with the long-standing problem of overcapacity.

They want to close under-used factories and cut staff. Peugeot is leading the way, with a restructuring plan that includes axing 8,000 jobs by 2014. The firm has lost 200 million euros ($246 million) a month in the past year and has no other choice, Peugeot executives say. "We're indebted and unable to earn as much money as we're spending," said Frederic Saint-Geours, in charge of brands at Peugeot. "That's why we had to take this decision."

But in Europe, announcing changes and enacting them are very different things. French voters have a history of resisting job losses and carmakers face huge obstacles to restructuring. President Francois Hollande has branded Peugeot's plans "unacceptable".

Aulnay's unions are bristling for a fight and its Socialist mayor has ordered Peugeot to find a new industrial employer for the site, threatening to expropriate the factory grounds if it fails. The plant - a rare place of worker pride in a region suffering from high unemployment and crime - employs 3,300 full-time workers and uses 7,500 sub-contractors around the region. Local officials say a closure could bring "social disaster".

"If you grew up around here, it's impossible not to know somebody who works or has worked at the plant, be it a mother, a father, a brother or a cousin," said Billel Ouadah, an Aulnay native, local centrist politician and work-site inspector.

"Many of those people will end up with no job and no economic prospects if the plant closes down. And as things stand, we have no clear idea what will come after Peugeot to help them get back on their feet once it's gone."

A FACTORY'S LONG SHADOW

Compared with carmakers' restructuring in the United States, Peugeot's plan is relatively modest and its deal for workers generous. The firm says all workers will be offered new jobs of some sort. Half will be transferred to its factory in Poissy, another Paris suburb. The rest will be kept on-site if Peugeot can lure a new industrial employer to Aulnay, or transferred to other factories. Those who choose to leave will receive 1,000 euros for every year they have worked at Peugeot, and help towards job-training.

"Restructuring in Chicago and Detroit was a totally different issue," said Karl Ostler, a director at FTI Consulting specializing in industrial restructuring. "Labor laws in Europe, especially France, are far stricter and unions are far stronger."

However, Peugeot's offer doesn't impress many in Seine-Saint-Denis, the area in which Aulnay lies, where unemployment hit 12.2 percent in the first quarter of 2012. In high-rise housing projects like the "Estate of the 3,000" - named because it was originally built to house 3,000 worker families from Aulnay - a shutdown would mean closing off the main source of jobs for low-skilled young workers, in a town where high-school dropout rates are twice the national average.

"Closing Aulnay would be a double tragedy," said Francois Asensi, a Socialist member of parliament for Seine-Saint-Denis and mayor of nearby town Tremblay-en-France. "There is PSA's huge economic weight, of course. But there is also a social disaster because it would remove one of the last real sources of stability in the community."

A closure would also hurt the town's finances. Already deep in the red, its debt payments have doubled in the past four years to 90.4 million euros in a budget of 226 million.

"We stand to lose millions," said Christophe Lopez, an adviser to Aulnay's Socialist mayor Gerard Segura. He warned the town would lose taxes from the company and from "hundreds of families that can no longer pay and have to rely on social services."

LAND GRAB?

To counter job losses and lower tax revenue, Aulnay officials hope to attract new manufacturers to Peugeot's 420-acre industrial site, situated between two major highways and close to a commuter rail link to Paris.

Peugeot has not disclosed the value of the land, though council officials estimate it at some 400 million euros. Some officials, including the mayor, have accused Peugeot of holding out on a sale of the property despite interest from several buyers. Sale talks were advancing with several parties including ADP, the firm that owns Paris' airports, until they broke off abruptly in 2011, said former Aulnay City Hall adviser Damien Baldy.

The possibility that the land could become a major rail hub in the capital's planned "Great Paris" network may have pushed Peugeot to hold out for more. "Basically, they seemed to think that they could hold on to the terrain to wait until the (Great Paris) station was completed, and then try to reap a big speculative gain," said Baldy.

Peugeot, which declined to comment when asked about that claim, has promised to seek new investors for its site. So far, though, the only concrete proposal is for two maintenance centers for the Great Paris network, which are likely to bring far fewer jobs - just dozens, estimate some observers - than the thousands the car plant provides.

Segura, a mayor keen to preserve Aulnay's working class heritage - and a left-wing hold on City Hall - says that unless appropriate new tenants can be found he might expropriate the land by invoking a law that applies in cases of economic emergency.

Ouadah, a rival of Segura, dismisses that threat as posturing. "You'd need to invoke some sort of public necessity, like building a hospital, which is not needed here."

With so much at stake, arguments over the best use for Aulnay could drag on for years. France's last auto plant shutdown offers a depressing precedent.

Two decades ago, Renault closed a plant in the Paris suburb of Boulogne-Billancourt. Today, half the site has been converted to residential and commercial use. Work to convert the other half finally started last December, though the company has yet to sell the choicest parcel of all - a 27-acre (11-hectare) island where Renault cars were once assembled.

"If we end up with a dead site (in Aulnay), that would be the worst outcome of all," Ouadah said. "But it's going to be difficult to get everyone to agree."

BATTLE OF WILLS

The government is trying to keep its distance from the dispute. In parliament, industry minister Arnaud Montebourg has criticized Peugeot's planned layoffs, saying France has a "real problem" with its strategy, but the government has not sought to block the shutdown. Though the government has raised political pressure on Peugeot to save jobs by drawing a new employer to Aulnay, so far it is essentially letting Peugeot go ahead with its plans.

Union officials are preparing for a fight and many workers at the Aulnay plant say they have already rejected Peugeot's promise to find them new jobs. Trust in management, never strong in the first place, was undermined, they say, when Peugeot's CEO, Varin, denied for a year that there were plans for any shutdown despite a leaked internal memo that detailed the scheme. Moving to another location is out of the question, many workers say.

Led by the CGT, unions are preparing for a series of protests from early September and hope to draw workers from another Peugeot plant facing job cuts, Rennes in northern France.

Workers have already won a temporary reprieve after an independent auditor was appointed to investigate whether Peugeot's reasons for closing Aulnay were "in good faith". The move could delay plans to start winding down the plant in late 2012 by two to three months.

In the unlikely event the probe finds Peugeot was not facing economic difficulties, but seeking to increase profits, the carmaker could end up in court and be forced to revise or scrap its restructuring plan altogether.

Philippe Portier, in charge of the auto sector at France's largest union, the CFDT, accuses Peugeot of overstating its production capacity problem and says the company could keep Aulnay open by increasing sales. "We are not of the mind that it's time to bury Aulnay quite yet," he said.

Peugeot declined to comment on Portier's claims, but its chief executive has repeatedly spoken about problems with overcapacity.

While the CGT says it wants to keep the plant open, other unionists admit they just want better severance packages. Tania Susset of the SIA union said Peugeot should pay each employee 50,000 euros and three years' salary. If all staff took such a deal, severance pay alone would cost Peugeot 165 million euros or more.

By comparison, when Ford unveiled plans to close 14 plants and fire 35-40,000 workers in the United States in 2009, it said the cost of shedding union workers was $250 million.

A month after the closure announcement, the sprawling parking lot by the Aulnay-sous-Bois factory's main entrance stands empty, its green gates locked shut and not a worker in sight. But the air of peace is an illusion. Workers are off for summer holidays. When they return in September, the fight for the Peugeot plant - and for the future of European carmakers -will heat up again.

CGT member Marc Darsy, who has worked at the plant for 16 years, says the next few months will be a battle of wills between Peugeot and the unions. "We have a lot of experience with social conflicts all around the country," he said. "They haven't seen anything yet."

(Reporting by Nicholas Vinocur and Laurence Frost; Editing By Richard Woods, Simon Robinson and Sara Ledwith)

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