PARIS – The French government should help PSA Peugeot Citroen reduce its capacity rather than fight plans to close a plant near Paris in 2014, according to consultants looking ahead to 2020.

“It’s better to lose several thousand jobs than 150,000,” says Remi Cornubert, automotive partner in France for Oliver Wyman consultants. “PSA is sized to produce 4 million cars a year, but it is making only 3.3 (million) to 3.6 million.”

PSA has announced it will close the Aulnay factory after production of the current Citroen C3 ends in 2014, but at the same time the auto maker is creating new capacity in China in its joint venture with Chang’an.

Both the French government and the unions representing Aulnay employees are trying to either keep the plant open or guarantee jobs for the workers. However, a study prepared for the government concludes that closing the factory is essential to cut PSA’s losses. The auto maker had a negative cash flow of €954 million ($1.2 billion) in first-half 2012.

U.S. government intervention in 2009 at General Motors and Chrysler, along with internal restructuring at Ford, resulted in the closing of enough factories that the U.S. auto makers could return to profitable utilization of their plants, Cornubert says.

The Detroit Three were operating at 45% capacity in 2009, but reached 71% in 2011 and 86% in first-quarter 2012.

In Europe, governments have intervened over several years’ time, trying to keep all plants open by subsidizing consumer purchases. So while capacity utilization dipped to only 66% in 2009 and recovered to 74% in 2011, it is falling this year as volumes shrink, especially in southern Europe.

PSA’s major markets are Spain, Italy and France, and each is declining. The auto maker sold 1.6 million vehicles in Spain in 2007, but that market is now about half that size. PSA production is declining worldwide this year, while its generalist competitiors are gaining ground compared with last year.

“Restructuring seems to be the only way to recover profitability,” concludes the report on the challenges facing the industry through 2020.

Whereas President Obama formed a task force in 2009 to study the Detroit auto industry and decide how to save it, France’s minister of industrial turnaround, Arnaud Montebourg, appointed an engineer, Emmanuel Sartorius, to look at PSA’s plans to close Aulnay. The report concludes the facility should be closed.

Sartorius cites market conditions as one factor in PSA’s difficulties. But he also criticizes the auto maker not only for bad strategic decisions that led to record losses in 2011, but also for failing to keep unions involved in decision-making processes.

“In the first decade of this century, the (PSA) group aimed at producing 4 million vehicles a year, although it never made more than 3.6 million. Its production capacity was oversized,” the report says.

“Besides, the group is probably paying today the consequences of its modest size (eighth-biggest auto maker in the world), which is the result of a delayed strategy of international development in an automotive economy that has globalized in less than 20 years.

“Also, in the period of 1999-2011, PSA Peugeot Citroen spent €3.1 billion ($4 billion) to repurchase its own shares.”

Bernard Julien, director of the research group Gerpisa, published an essay in which he argues that the Sartorius report’s credo “seems to be that ultimately the automobile is an affair too important to be left to the judgment of the leadership of the groups that determine the outcomes in France.

“Put before a fait accompli, the government and unions can only keep to the roles of resisting and attempting to modify decisions for which they cannot verify the legitimacy: This would not be the case if today’s difficulties had been preceded by a rich dialogue throughout the enterprise on the market environment and PSA’s strategy.”

The Oliver Wyman report notes profit margins of the Chinese and Korean auto makers, which hardly were touched by the 2008 economic crisis, averaged about 10% in 2010, while “those of the U.S. auto makers rose from 1.5% to 7.6% between 2007 and 2010, thanks to the massive restructuring by Ford and General Motors.”

In Europe, margins dropped slightly during that period, from 7.7% to 7.6%, “but that masks some important disparities” between the German luxury auto makers and mass-market manufacturers such as PSA, Renault, Ford, Opel and Fiat, the report says.