PSA Peugeot Citroen (IW 1000/43) shocked France on Thursday with an announcement that it will cut 8,000 jobs, sparking union anger and underlining the country's competitiveness problems.
Unions slammed the announcement as a "declaration of war" and an "earthquake," with the hardline stance certain to add to the problems facing the new Socialist government as it deals with France's flagging economy.
President Francois Hollande was elected in May on a promise to put the economy back on track, focusing on growth rather than the austerity policies adopted across Europe in the face of the eurozone debt crisis.
Prime Minister Jean-Marc Ayrault said the layoffs were "a real shock" and announced that the government would present its rescue plan for the struggling auto industry on July 25. The auto industry is strongly unionized and a major employer in French manufacturing, with job losses there having a knock-on effect on the wider economy.
The company said it would cease production at its historic Aulnay site near Paris which employs 3,000 people, with 1,400 jobs also going at its Rennes plant.
In addition, some 3,600 jobs will be cut across the corporate structure, as the company continues "reducing costs and improving its operating efficiency."
The company employed a massive 100,000 people in France at the end of 2011.
PSA, France's biggest carmaker and second in Europe to Germany's Volkswagen, said it expected the European market to shrink 8% percent this year and had to adjust its business in the face of the worsening outlook.
For the period 2007-12, the market is down 23%, it said, compounding problems which left its plants operating at just 76% of capacity in the first half of this year.
PSA said the problem was even worse in the small car segment, which accounts for 42% of its sales "and where most of the competing models are made in low-cost countries".
As a result, the auto division is expected to report an operating loss of some 700 million euros ($860 million) for the first of half of 2012, producing overall a net loss for the period.
The Aulnay closure is the first of a car factory in France since Renault's iconic plant at Boulogne-Billancourt closed down 20 years ago.
Peugeot boss Philippe Varin vowed that "nobody would be left by the wayside".
"The depth and persistence of the crisis impacting our business in Europe have now made this reorganisation project essential in order to align our production capacity with foreseeable market trends," Varin said.
But he rejected the idea of the state injecting capital into the firm. "We have big financial security," Varin told journalists later. "This matter is not on the agenda."
He said Peugeot would present further ideas, including plans to "adjust investments" and a "muscular effort" to cut costs, on July 25 when it next announces quarterly results.
PSA, trying to cut the overcapacity that is blighting the whole European industry, announced earlier this year a tie-up with General Motors in an effort to cut costs.
Previously released figures showed PSA first half European sales down 18% to 980,000 cars and commercial vehicles, with its market share falling to 12.9% from 13.9%.
"As soon as Peugeot announces the loss of 8,000 to 10,000 jobs, you have to multiply by three or even four to measure the impact in terms of jobs for the entire country," CGT union Bernard Thibault said, vowing that his union would "react."
Union officials said the Aulnay factory had ceased work after the announcement on Thursday but Peugeot said it was still mostly running. Outside the plant, angry employees told journalists they would fight the lay-offs.
"We are declaring war on PSA. For a year we have heard nothing but lies," said one of the employees, dressed in his grey work uniform.
"We are a social and political bomb," said CGT delegate Jean-Pierre Mercier. "I don't know to what extent we can make them back down, but we will cost them very dearly."
Ayrault this week said the government would make legislative changes next year to reform France's system of using payroll charges to fund social welfare programmes in a bid to lower labour costs and boost competitiveness.
"Prospects must quickly be found, as much to ensure the future of social welfare as to increase the competitiveness of our businesses," Ayrault told a conference gathering unions and employers.
France's trade deficit remains high and ministers in Hollande's new government have raised concerns that low competitiveness is stifling the economy and hampering job creation.
- Celine Serrat, Agence France-Presse
Copyright Agence France-Presse, 2012