Bloomberg News

Peugeot to Cut 3,500 Jobs After Lowering Profit Forecast

October 26, 2011

(Updates with details from Besson meeting in sixth paragraph.)

Oct. 26 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-biggest carmaker, announced plans to eliminate as many as 3,500 jobs in the region after lowering its 2011 profit target.

The carmaker next year will cut 1,000 jobs in manufacturing and another 2,500 positions elsewhere at the company to reduce costs by 800 million euros ($1.12 billion), the Paris-based company said in a statement today.

Peugeot said last month the carmaker would reduce its workforce and intensify a three-year savings drive. Recurring operating income in the automotive division will be near breakeven this year compared with an earlier estimate for a profit on rising competition to cut car prices, the company.

“It’s certainly a relief that more is being done but the question is what the market conditions will be like when it gets to February,” said Albrecht Denninghoff, a Sylvia Quandt Research analyst who recommends buying the shares. “If the market doesn’t improve, then more will be needed.”

Peugeot rose as much 62 cents, or 3.6 percent, to 17.68 euros and was up 28 cents, or 1.6 percent to 17.34 euros as of 1:56 p.m. in Paris trading. The shares have dropped 39 percent this year, valuing the carmaker at 4.06 billion euros.

French Industry Minister Eric Besson, who met with Chief Executive Officer Philippe Varin today, said in a statement that the carmaker had vowed to continue producing 40 percent of its global output in France.

Work Stoppages

Peugeot and fellow French carmaker Renault SA are planning temporary work stoppages at some factories as the European sovereign debt crisis hits demand for vehicles. Peugeot, which is struggling to narrow a profitability gap with Volkswagen AG, saw its market share erode to 12.6 percent in the first nine months of 2011 from 13.5 percent a year earlier, according to the European Automobile Manufacturers’ Association.

Another 2,500 workers on temporary contracts with Peugeot who work for the carmaker’s suppliers will transfer back to their full-time employers, spokesman Pierre-Olivier Salmon said by telephone today.

Pricing deteriorated “dramatically” in September, reducing margins by 0.8 points, Peugeot said, without specifying the figure for the quarter. The company said it is “closely tracking” inventories with the aim of reducing supply to the equivalent of 62 days of sales from 65 at the end of September.

Auto revenue declined 1.6 percent to 9.31 billion euros ($13 billion) in the third quarter as deliveries fell 2.5 percent on a “sharp contraction in Europe,” Peugeot said.

The carmaker, which reported automotive earnings last year of 621 million euros, said raw material prices will reduce profit by 700 million euros this year, while the earthquake in Japan will trim another 250 million euros off earnings.

‘Extremely Disappointing’

“It’s extremely disappointing because they said at the Frankfurt Motor Show that they would be able to compensate for a dip in the market with cost reductions,” Denninghoff said. “The numbers were simply a lot worse than expected.”

Peugeot planned to halt its plant in Aulnay, France, which makes the Citroen C3, this week, while production at the manufacturer’s Trnava factory in Slovakia will cease production from Oct. 28 to Nov. 4 and from Nov. 14 to 18, the company said Oct. 21. A line at the Poissy plant is stopping production for three days in October.

Supply Interruption

The interruption of screw supplies in September affected all the company’s plants in Europe and led to a shortfall of 45,000 vehicles, Peugeot said today. The company sold 788,000 vehicles in the third quarter.

“The competitive environment has become more challenging due to pricing pressure, which has intensified in Europe since September,” Peugeot said. “The group’s strategy of becoming more global and moving upmarket remains more valid than ever.”

Full-year free cash flow from manufacturing and sales will be negative, the company said, revising down an earlier prediction for neutral free cash flow.

Peugeot’s total third-quarter sales rose 3.5 percent to 13 billion euros, slowing the growth rate for the first nine months of 2011 to 7.7 percent.

--With assistance from David Whitehouse, Steve Rhinds and Tara Patel in Paris. Editors: Chad Thomas, Heather Harris.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net;

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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