June 28, 2012 / 1:08 PM / 6 years ago

Peugeot increases cuts, prepares closure -unions

PARIS (Reuters) - Struggling French car maker PSA Peugeot Citroen (PEUP.PA) is seeking additional cost savings this year and freeing capacity at one of its two Paris plants to prepare for the other’s closure, union officials said after talks with management.

The new Peugeot logo is seen on a car in Paris January 11, 2010. REUTERS/Benoit Tessier

Chief Executive Philippe Varin told workers’ representatives on Thursday that the existing 1 billion euro ($1.25 billion) savings goal “will not be enough”, senior Force Ouvriere union official Jean-Francois Kondratiuk told Reuters.

Europe’s second-biggest automaker has also briefed staff on plans to reduce production of the Peugeot 208 small car at Poissy, west of Paris, Kondriatiuk said. The move is seen as preparing the way for the closure of Peugeot’s long-threatened factory in the northern suburb of Aulnay sous Bois.

Peugeot manufacturing chief Denis Martin declined to comment on the financial savings target but said additional cost-cutting measures will be unveiled at a works council next month.

“There is a realization that we have structural problems at Aulnay, and unfortunately Aulnay isn’t alone,” Martin said.

“There are problems with a certain number of our sites - there are issues at Rennes and Sevelnord,” he said, adding that restructuring plans have been in preparation for “several months”.

Peugeot last month asked workers at Sevelnord, a joint venture in northern France from which Fiat FIA.MI is withdrawing, to agree to a pay freeze, hundreds of job cuts and other concessions or face possible closure.

Doubts have also arisen over production levels at Rennes, western France, as the French automaker weighs plans to build a future generation of midsize cars at a General Motors (GM.N) plant under the companies’ new alliance.

Peugeot’s situation has deteriorated since last year, when the core autos division swung to a loss, punished by the company’s exposure to France and other European markets badly hit by the region’s debt crisis.

The Peugeot and Citroen brands’ combined share of European car sales dropped a percentage point to 12 percent in the first five months, as their sales plunge more than doubled the broader market’s 7.3 percent contraction.

“We don’t see how the European market can rebound in the next few years, so we are in a very difficult situation,” Martin said on Thursday. Peugeot will respond with additional savings across all cost centers, he said.

The car maker had already increased its savings target by a quarter in February and announced plans to sell 1.5 billion euros of assets including its Paris headquarters.

The following month it raised a further 1 billion euros through a share issue in which GM acquired a 7 percent Peugeot stake - underpinning the companies’ plans to pool development and production of vehicles and technologies across their nascent alliance.

Plans to close Aulnay in 2014 were first revealed in an internal document leaked last year - which also cast doubt on the future of the group’s assembly plants in Rennes and Madrid.

While Peugeot confirmed the authenticity of the document, CEO Varin has repeatedly denied that any decision had been made.

The planned adjustment to Peugeot 208 production will see output reduced by one-third at Poissy and increased in Mulhouse, eastern France and Trnava, Slovakia. That will allow Poissy to ramp up production of the equivalent Citroen C3 model currently assembled at Aulnay, unions say.

“By reducing the 208 (at Poissy) you can increase output of the C3,” said Jean-Pierre Mercier of Peugeot’s main CGT union. “All the conditions are now in place for Aulnay’s closure to be announced at the end of July.”

Peugeot is scheduled to publish its first-half financial results on July 25. Its shares were up 0.8 percent at 7.3 euros at 0838 EDT.

Reporting by Laurence Frost; Editing by Elaine Hardcastle

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