PSA Tightens Belt

PARIS – PSA Peugeot Citroen, stung by the economic slowdown and price wars with its small-car rivals, has fallen into the red this year.

CEO Philip Varin tells government officials the auto maker will record a loss in the second half of 2011, compared with earnings of E405 million ($525 million) in the first six months.

He spoke with the government, which has an interest in keeping jobs in France, a day before PSA met with its workers committee to detail the 4,300 jobs that will be cut in France in the coming months.

In an attempt to save E400 million ($520 million) in salaries to match a E400 million reduction in purchasing, PSA is slashing both white-collar and blue-collar positions. Some 1,900 jobs are within PSA itself, and the rest are with contractors.

Another 1,700 jobs will be eliminated outside France.

PSA has been the darling of French politicians, compared with its rival Renault, because PSA makes more cars in France than it sells here and Renault has been more aggressive in cutting domestic jobs.

Varin spent much of his time teaching the Economic Affairs commission of the National Assembly about the realities of the global automotive business and defending PSA’s investments in China, India and South America.

French factory labor costs E33 ($43) an hour, against E20 ($26) in Spain, E10 ($13) in Portugal and Slovakia and E5 ($7) in China. But because labor is only 15% of the total cost of a car, the difference in cost between a car made in Slovakia and one made in France is 10%.

Varin says PSA’s strategy is to globalize and move upscale, but neither will be done quickly.

About 61% of the auto maker’s business is still in Europe, and European volume remains 20% below 2007 levels. Some of PSA’s key markets are off even more, including Spain (50%) and Italy (30%). Varin expects the European market to continue to erode next year.

PSA has introduced the Citroen DS line and several successful Peugeots like the RCZ and 508 that move the mark upward, but the base of its volume remains small cars with their narrower profit margins. In Europe small cars represent about 33% of the market, but they make up 45% of PSA’s volume, compared with 30% at Volkswagen.

And Renault, which hasn’t had a new high-volume car for several years, has been aggressively cutting the price of its Clio, which will be replaced next year.

Globalization remains a priority, but Varin feels obliged to defend the idea.

“PSA’s will to be deployed in international markets can in no way be interpreted as a conspiracy to outsource work hatched by our group,” he says. The fact the Peugeot 508 will be built in China as well as France makes the 508 possible, achieving a combined volume of 200,000 units annually, he adds.

Of the 1,900 PSA jobs to be lost, 1,019 are in the factories at Sochaux, Rennes, Mulhouse, Aulnay and Poissy. Research and development will lose 495 positions, and another 400 will disappear in marketing, human resources and other areas.

The contractor jobs disappearing mainly are in research and information technology.

The largest French labor union, CGT, called for an afternoon strike at PSA’s Aulnay factory, where it announced an appeal for job preservation help to President Nicholas Sarkozy and his main opponent in the election next year, Francois Hollande.