As the European economy slows, demand for autos has slumped. French auto manufacturer Peugeot Citroen is burning through cash and has announced that it intends to release 8,000 workers to cut costs.
Peugeot is an iconic name in French business. Peugeot company was founded back in 1810 and manufactured coffee mills and bicycles. The company produced its first automobile in 1891.
In 1974 Peugeot S.A. as it was then called bought over a 38 per cent share in rival auto manufacturer Citroen. In 1976 they bought almost 90 per cent of the then bankrupt company shares. The result was the formation of PSA Peugeot Citroen the full name of the present company.
The situation in the European car market reflects inequality in incomes. Recently companies that make luxury cars such as Audi, BMW, and Mercedes have done well. Profit margins are high on these models and the well off continue to buy. However some mass market manufacturers including Peugeot, Renault, and Opel are not doing well. Especially in southern Europe with austerity measures in place the demand for new autos has declined.
Peugeot has older factories and workers who are relatively well paid. With declining demand the factories are on average operating at just 76 per cent of capacity. As a result Peugeot believes it must make these drastic cut backs.
The Aulnay plant which is near Paris produces the Citroen C3 subcompact. As part of a reorganization plan the plant will close in 2014 with 3,000 workers losing their jobs.
The new French Socialist President Francois Hollande pledged that he would revive industrial production. The Peugeot cutbacks will be a blow to these plans. Another plant in the city of Rennes will also lose 1400 workers as the larger cars it produces are in less demand. Social Affairs Minister Marisol Touraine described the cuts as unacceptable. Arnaud Montebourg, the Minister for Industrial Renewal said:
“We cannot accept PSA’s plans as they stand,” Montebourg told parliament. “We are asking PSA to examine in good faith any options there may be other than what it has in store for its factories in France, their workers and their families.”
However, the company is desperate to cut costs as it is expected to face a loss for the first two quarters of 2012.
CEO of Peugeot Philippe Varin said:
"I know how serious these measures are for the people concerned, and for our entire company," Chief Executive Philippe Varin told reporters. "But a company can't preserve jobs when it is burning 200 million euros ($245m) a month in cash."
Peugeot had announced last year that it was cutting 6,000 from its European work force. With these new cuts its French work force will be reduced by almost 10 per cent. The CGT union that represents autoworkers reacted strongly to the announcements. At the Aulnay plant workers stopped work. Aulnay is a depressed area northeast of Paris. The local union leader said that Peugeot CEO Varin had declared war on the workers.
With a weaker labor movement the U.S. government offered aid to auto companies only on condition that factories be closed and workers give up benefits. As a result the companies have made somewhat of a comeback. However new workers have lost benefits and start at lower wages than senior workers but senior workers also made concessions. In France unions are stronger and have more political influence. The French government tries to save jobs and prevent closure of plants if possible.
Hollande leads a socialist government. These days many socialist parties are socialist in name only. PASOK for example the main Greek Socialist party is part of a coalition government that is imposing austerity measures including the privatization of state owned assets. The party is helping to restore investor confidence not protecting workers their jobs or benefits. Hollande could find himself in a similar situation in that he may need to agree to job cuts and loss of benefits for Peugeot auto workers. Agreeing to these measures may anger an important part of his political base.