PSA considering further production cuts to lower costs image

PSA Peugeot-Citroen, which is currently Europe’s second-largest carmaker, is considering cutting production capacity at a French factory to reduce fixed costs amid slumping sales on the continent.

Peugeot, which reported a first-half operating loss of 510 million euros ($685 million) in its automotive unit, aims to reduce cash consumption by 50 percent this year to 1.5 billion euros. It has already closed a factory on the outskirts of Paris and is cutting 11,200 jobs in its home country by 2015.

Peugeot is looking at removing capacity from a plant in Mulhouse, which has two production lines and built 224,000 vehicles last year, said Pierre-Olivier Salmon, a spokesman for the Paris-based company. The factory currently can assemble as many as 452,000 cars annually.

“Our goal is to have a utilization rate of 100 percent in our French factories” by 2016, Salmon said. A recent agreement with unions allows the company to start talks on whether to keep the plant’s second line open if annual production falls below 250,000 vehicles, he added.

Possible production cuts in France are the “natural consequence” of the new labor deal signed last month by four of Peugeot’s six main unions, Salmon said. Unions agreed to reduce overtime pay and freeze salaries in exchange for investment guarantees and a pledge not close any French factories in the next two years. Le Figaro today was first to report the possible capacity cuts.

Peugeot has posted the biggest sales drop in Europe this year of all carmakers, with deliveries plunging 10 %, compared with a decline of 3.1 % for the overall market, according to data from the ACEA industry group.

Via Bloomberg