PSA Struggles With French Anger Over GM Tie-Up

PARIS – PSA Peugeot Citroen’s troubles have been a long time in the making and the solution now being elaborated, including 6,500 layoffs in France, has been under development for more than a year.

Past partnerships with auto makers, such as Ford for diesel engines and BMW for gasoline mills, have been punctual decisions aimed at lowering costs. But PSA’s move this year to sell part of itself to General Motors is a critical element in its long-term cost reduction.

PSA estimates it will save E1 billion ($1.2 billion) a year when jointly developed products start arriving on the market in about 2016. But costs need to be trimmed sooner than that. PSA sales fell 13% to 1.62 million units in the year’s first half, with a 14% decline to 994,000 in Europe alone.

Closing the Aulnay assembly plant outside of Paris will save €108 million ($133 million) a year, according to a PSA document cited by the Le Figaro newspaper. The factory at Rennes, which makes the Citroen C5 and C6 and Peugeot 407 coupe and 508, will lose 1,400 workers.

PSA says its European assembly plants ran at 76% of capacity in the first half, compared with 86% in like-2011. Closing Aulnay and moving the successor to the Citroen C3 to Poissy, which also is in the Paris region, will help the auto maker use its capacity better.

Poissy, which once was a Chrysler plant making 500,000 Simcas annually, has been producing about 400,000 units a year of the Peugeot 207 and 208 and Citroen C3 and DS3.

The GM partnership also allows PSA to trim engineering staff, the heart of its future, to save money more immediately. Sharing development of some future products with GM’s Adam Opel unit in Germany will allow the French auto maker to eliminate nearly 700 engineers at its research and development centers.

According to figures reported by L’Usine Nouvelle, a leading industrial publication, PSA intends to let go 8.5% of the 2,673 employees working at its powertrain development center of La Garenne-Colombes and 12.5% of its staff at the Velizy R&D center.

The auto maker also is shrinking its headquarters staff in Paris by 317 white-collar workers and technicians, or 19% of the total there.

Every PSA facility in the country will lose some jobs, and naturally, workers are angry. So is new French President Francois Hollande, who has promised to defend French jobs.

The CGT union at Aulnay says GM is to blame for PSA’s troubles, because since the accord was signed, PSA has quit sending 200,000 complete-knocked-down kits to Iran Khodro for assembly.

Iran was Peugeot’s second-biggest market, and the CGT says American political pressure on GM was passed on to PSA, which abandoned the market in February.

Hollande is in a difficult position because he can’t stop PSA from closing plants and cutting employment. However, PSA CEO Philippe Varin has said there will be buyout packages for both salaried and hourly staff.

Hollande blames PSA’s difficulties on poor strategy, and analyst Jean-Michel Prillieux of Inovev agrees. “PSA counted on the European market for too long,” he says. And its strategy of moving into pricier segments was “less pertinent” in a world that was slapped in 2008 by an economic crisis that has not yet gone away in Europe.

Competitor Renault had moved into low-cost cars with its Dacia program. In addition, Renault purchased Nissan more than a decade ago to seek long-term cost savings, while PSA was satisfied with partnerships with Mitsubishi, Fiat and Toyota for vehicle platforms and wth Ford and BMW for engine development.

PSA’s move toward more premium cars has improved unit profits, but it also has hurt volume. Sales have been further reduced by the auto maker’s refusal to follow competitors’ price-cutting in the small-car segments, saying it depends on small cars for much of its volume.

Hollande has said he will announce new policies to protect automotive jobs in France on July 25, the same day PSA announces its first-half economic performance.

The president is not expected to revive the scrapping bonus for old cars, which had the effect of boosting PSA’s sales of its small cars a year ago and now is causing an exaggerated decline in deliveries.

However, some media reports say a new bonus-malus scheme will be among the changes, in which France gives money to buyers of fuel-efficient cars and charges penalties to buyers of gas-guzzlers.

Autoactu.fr reports that a €5,000 ($6,150) bonus will be reserved for electric vehicles, but it will not apply to cars like the Opel Ampera and Chevrolet Volt extended-range EVs, which qualify under today’s rules.

Prillieux says it will be easier for PSA to close the Aulnay plant this year under a leftist government, which will do more to help displaced workers than a right-wing administration like that of former President Nicholas Sarkozy.

PSA’s production contraction and capacity reduction were inevitable. A decade ago, France built 3 million light vehicles annually and now is making 2 million, which is about the size of the local market.

But no matter what the auto maker does from here on, it’s clearly fallen out of favor with the French.

“We have a real problem with the strategy of Peugeot, the alliance with General Motors and the actions of the controlling shareholder (the Peugeot family),” Arnaud Montebourg, the minister of production revival, says on a French radio program.

“Where is PSA going? Where do they want to take us?” he adds. “I remind you that three years ago, in 2009, 1,700 workers at Rennes (assembly plant) lost their jobs. If this is to happen again three years later, we say ‘No.’”

Montebourg says he will meet Friday with Thierry Peugeot, president of the supervisory board at PSA.

In response to the implied criticism that PSA now is controlled by GM, the French auto maker has sent journalists a reminder of its shareholdings, with the Peugeot family trusts holding 25.4% of the capital and 38.1% of the votes, while GM has 7.0% of the capital and 5.9% of the votes.

“All the members of the Peugeot family that sit on the supervisory boards (of the family trusts) and all the members of the family that work for the group at different posts live in France and pay their taxes in France,” PSA says.

“The Peugeot family has always given priority to the development of the group and to its strategy, not hesitating to dilute its participation when the situation required it.”

The family put in €133 million ($163.2 million) in an extension of capital early this year, even while seeing its ownership drop from 31% of the capital to 25.4%. PSA also notes the company paid no dividends in 2009, 2010 or 2012.

But in what appears to be a slap at PSA, Montebourg says France will give support to the EV industry and low-emission cars when its plans are announced next week. Renault, with its Zoe, Twizy, Fluence ZE and Kangoo ZE, is well-placed for electric cars.