PSA Peugeot Citroen

Peugeot Warned to Revamp 'Urgently' or Collapse

The report said the company was too dependent on the European market, which still accounts for 50% of its sales.

French auto giant PSA Peugeot Citroen (IW 1000/47) was Tuesday warned it must restructure urgently and tie up with a global group after posting sweeping losses due to strategic errors over two decades.

A damning government-sponsored report said Europe's second-biggest automaker after the VW group and which recently entered a limited alliance with General Motors  had missed the bus on globalization.

A restructuring was inevitable and the firm had to "act urgently to get on top of the situation," the report by government expert Emmanuel Sartorius said.

"The need, in principle, for a plan to reorganize industrial activities and reduce the workforce cannot be challenged unfortunately."

It said that "in the medium and long term, the future of PSA lies in a strategy of an alliance with a big world automaker."

The report was commissioned by the new Socialist administration of President Francois Hollande against the background of a plan by the group to close a landmark plant north of Paris and shed 8,000 jobs across France.

French Minister for Industrial Renewal Arnaud Montebourg, who had attacked the job cuts and PSA's corporate strategy, had conceded that it was "really in trouble" and needed "restructuring," a union official said.

Franck Don from CFTC union said Montebourg would propose tripartite meetings between the state, union officials and the management to "review" the mass lay-offs and other plans.

"Therefore his position in July has been totally forgotten," he said.

Hollande on Tuesday said state institutions "will do everything we can to reduce the number of layoffs," after talks with PSA employees.

Social Dialogue Needed

Montebourg meanwhile called for an "exemplary and transparent social dialogue to examine different options aimed at renegotiating, reforming or reducing" the redundancy package.

The company was known to be experiencing pressing financial strains, but the announcement of the cutbacks soon after the new government was elected came as a shock and caused considerable uproar in France.

The report said the company was too dependent on the European market, which still accounts for 50% of its sales.

Its positioning as a carmaker to all model ranges added to its difficulties given that eastern Europe led in the production of cheaper models and Germany dominated in higher-end and luxury cars.

The government has signaled strongly that it wanted the restructuring measures to be softened, in a context where relaunching manufacturing activity in France is a policy priority.

The report, revealed to trade unions on Tuesday, severely criticized management and shareholders for their strategy in the past, but appeared to support the company's general line that there is no alternative to deep changes.

PSA Peugeot Citroen, which is not controlled by the French state and in which the Peugeot family keeps a strong voting interest, has dropped out of the Paris CAC 40 leading stock index and been beset by poor sales.

The report said it had erred "in choosing to maintain its independence," adding that the "management lacked in ambition in trying to internationalize the group."

It also denounced the plan for mass job cuts at the emblematic Peugeot plant at Aulnay north of Paris saying "history would have been written in a different manner if the management had engaged in a transparent dialogue with social partners and state authorities."

The company aims to break even by the end of 2014.

-- Laure Fillon, AFP

Copyright Agence France-Presse, 2012

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