French President Francois Hollande is faced with his biggest challenge so far – PSA Peugeot-Citroen’s plan to close a factory in France, the first facility to be shut down in the country in the last 20 years.
Having promised during the presidential campaign that he would prevent a wave of new cuts, Hollande is now squeezed between demands of the unions and businesses seeking measures to generate growth.
Peugeot’s plan to cut no less than 14,000 jobs has been strongly opposed by the government, which appointed an expert to analyze the company’s financial situation. In turn, Peugeot CEO Philippe Varin said he was ready to open the books to the government to show French labor costs are too high. He added that new car-scrapping incentives aren’t the answer.
The CGT union at the Aulnay plant that Peugeot plans to close has asked the government to intervene, with industry minister Arnaud Montebourg saying the state doesn’t accept the plan as it is while prime minister Jean-Marc Ayraul described the closing as a true shock. There’s little the government can do, however, as any attempts to block the cuts in the short term may discourage investments in France. It would also mean intervening in a free market economy, as the state doesn’t hold shares in PSA Peugeot-Citroen.
Peugeot sales slumped 13 percent in the first half of the year, while the company’s operating loss will reach €700 million. Peugeot plans to cut €1 billion in costs in 2012.