Peugeot cuts 8000 jobs, shuts plant, and Opel CEO resigns

ARIS/MUNICH – The woes confronting Europe's auto industry surfaced dramatically Thursday when France's PSA Peugeot Citroen announced 8,000 job cuts and a plant closure and Germany's Opel got its fourth CEO in less than three years.

The two auto makers – one a French national icon and the other the principal European subsidiary of General Motors Co. – are struggling with mounting losses and pursuing restructuring plans likely to spark political tension in austerity-strapped Europe.

Ironically, just five months ago, Peugeot and Opel announced a product-development and procurement alliance aimed at producing substantial cost efficiencies for both companies.

GM bought a 7 percent stake in Peugeot to underpin the alliance. But most of the projected savings won't kick in for several years, and meanwhile the companies are plagued with plunging sales as Europe's economy flirts with recession.

The announcements at the two firms highlight fundamental differences between the methods the U.S. government used to restructure Detroit's auto industry three years ago and European governments' strategies of propping up their auto sectors.

Detroit won state aid on the condition that it close factories and cut jobs to restore financial health, a recipe that has produced strong corporate comebacks.

European governments, by contrast, insisted auto makers – including Peugeot and Opel – not close factories or fire workers – leaving many firms mired in losses that now threaten thousands of the jobs those governments had tried to save.

Peugeot's Aulnay plant near Paris, which employs more than 3,000 workers to build the Citroen C3 subcompact, will end production in 2014 as Peugeot reorganizes its under-used domestic capacity.

Aulnay will become the first French car plant to close in two decades. The announcement undermines new Socialist President Francois Hollande's pledge to revive domestic industrial production.

Another plant in the western city of Rennes will shed 1,400 workers as it shrinks in step with demand for larger cars such as the Peugeot 508 and Citroen C5. Some 3,600 non-assembly jobs will also be scrapped across the country.

Combined with France's share of 6,000 Peugeot job cuts across Europe announced last year, the latest measures will reduce the firm's 100,000-strong domestic workforce by close to 10 percent, excluding subcontractors and service providers.

"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's burning 200 million euros ($245 million) a month in cash," he said. "Prevaricating would have put the group in great danger."

Hollande said he was "extremely concerned" and one of his ministers used stronger language.

"We don't accept Peugeot's plan in its current form," Industry Minister Arnaud Montebourg told parliament. Ministers will "ask Peugeot to examine all other possible solutions in good faith", he said.

But the government stopped short of an outright condemnation of the job cuts, drawing the wrath of the CGT, France's biggest industrial union.

Workers at Aulnay downed tools after the announcement, halting production. Hundreds gathered under protest banners at the main entrance to the plant, the biggest industrial employer in the depressed, multiethnic Seine-Saint Denis district northeast of Paris.

"Varin has declared war on us, and we'll give him war," said local CGT union leader Jean-Pierre Mercier.

Shares in the company, controlled by the Peugeot family, closed down 1.74 percent. The stock is at its lowest in more than a quarter of a century after plunging 32 percent so far this year, wiping 1.2 billion euros off the firm's market value.

Varin disclosed that a 700 million-euro ($858 million) loss at the core manufacturing division had dragged the group into the red in the first half. Operating cash flow is not expected to turn positive before 2015, he also said.

"LOST THE PLOT"

"People weren't expecting them to consume cash at such an alarming rate for such a long time," said Erich Hauser, a London-based auto analyst with Credit Suisse.

"This is a company that has run out of options," Hauser said. "Peugeot has lost the plot in European small cars, which were its traditional mainstay."

Peugeot's global sales fell 13 percent to 1.62 million light vehicles in the first six months – contrasting with a more modest 3.3 percent decline reported by Renault and a 10 percent gain for the Volkswagen brand.

Among the automakers most exposed to southern European markets hit by the region's debt crisis, Peugeot also lacks its German rival's export success or the support of a low-cost brand like Renault's Dacia.

Meanwhile, General Motors pushed aside yet another chief executive at Opel as it moves to reverse more than a decade of losses in Europe.

GM said Opel CEO Karl-Friedrich Stracke had stepped down to take on "special assignments" for GM CEO Dan Akerson. GM Vice Chairman Steve Girsky, who heads Opel's board, will serve as acting head of Europe until a successor to Stracke is found.

"This is a clear sign that GM was getting impatient and that Girsky believes he can do a better job," IHS Automotive analyst Christoph Stuermer said. "If they had a clear candidate waiting in the wings they would have named him today."

Two weeks ago the supervisory board for Opel approved a business plan aimed at returning to profitability. But that plan was widely regarded as falling short of making needed changes.

Opel has been in talks with its German unions over extending a deal that protects its four assembly plants in the country from closure through the end of 2014 by an additional two years. In exchange, Opel would receive wage concessions and an agreement to close the Bochum plant in 2017 – a full five years from now.

"We've lost $14 billion (in Europe) in the last 12 years," Akerson said on June 28. "It's got to stop."

Thursday's announcement means Girsky becomes Opel's fourth CEO in less than three years. Hans Demant was pushed aside in November 2009 and was replaced two months later by Nick Reilly, who lasted until April 2011.

One Opel board member initially did not believe the news of Stracke's exit, while a person close to labor representatives on the board said they were caught "completely by surprise." Both asked not to be identified in discussing the change.

Political reaction came quickly in Germany, just as it had after Peugeot's announcement in France. The head of the state government in Hesse, home to Opel's headquarters, expressed fear Opel might renege on job guarantees.

"Stracke told me in May that the current contracts would be honored and the historical heart (of Opel), the Ruesselsheim plant, would remain in its current form," said Hesse state premier Volker Bouffier in a statement on Thursday. He said the state government expected Opel to respect those pledges.

Detroit-based Ford Motor Co. also recently warned that its outlook in Europe was deteriorating. Ford has said it expects to lose between $500 million and $600 million in Europe this year, but some analysts now forecast a loss of $1.1 billion, more than Opel's expected losses.

The industry's mounting problems, and especially Peugeot's announcement Thursday, could prompt a large-scale automotive restructuring in Europe, where excess vehicle production capacity is estimated at 20 percent.

Sergio Marchionne, CEO of Italy's Fiat will probably "be watching today's announcement very closely," said Kristina Church of Barclays Capital. Marchionne said last week that Fiat would be left with "one plant too many" in Italy if the auto market did not recover within two or three years.

His opposite number at Renault, Carlos Ghosn, has said the first major restructuring by a European manufacturer could open the floodgates to a rash of closures.

"The day somebody's able to restructure heavily in Europe, it's going to force all car makers to do it," Ghosn said in March.

Peugeot executives had already outlined plans to close Aulnay in a document leaked to unions in June 2011, while warning that an announcement would be impossible before last month's French elections.

National CGT union leader Bernard Thibault criticized Hollande's new administration for failing to prevent the Peugeot job cuts and called the restructuring plan an "earthquake".

The job losses at Peugeot may yet go further.

Some 2,700 workers at the Sevelnord delivery truck plant in northern France were asked in May to agree to a pay freeze, hundreds of job cuts and increased flexibility – or face closure after Fiat exits the joint venture as soon as this year.

Discussions with unions and prospective partners are "on the right track," Peugeot manufacturing chief Denis Martin said on Thursday. Future production now hangs on conditions including "the efforts that we're asking of the workforce", he added.

($1 = 0.8164 euros)

(Additional reporting by Nicholas Vinocur, Gerard Bon and Gilles Guillaume in Paris and Jennifer Clark in Milan; Writing by Paul Ingrassia; Editing by Peter Graff)