French automaker PSA Peugeot Citroen announced 8,000 job cuts and a plant closure as it struggles with mounting losses, in a move that could spark more restructuring and political tension in austerity-strapped Europe.
The Aulnay plant near Paris, which employs more than 3,000 workers, will stop making cars in 2014 as Peugeot reorganizes its under-used domestic production capacity, the company said on Thursday.
Aulnay, which builds the Citroen C3 subcompact, will become the first French car plant to close in more than two decades, challenging new Socialist President Francois Hollande's pledge to revive industrial production.
"I know how serious these measures are for the people concerned, and for our entire company," Chief Executive Philippe Varin told reporters. "But a company can't preserve jobs when it is burning 200 million euros ($245 million) a month in cash."
"Prevaricating would have put the group in great danger."
Prime Minister Jean-Marc Ayrault said the government was studying the closure plan, which he called a "great shock", but stopped short of condemning it, incurring the wrath of the CGT, France's biggest industrial union.
Peugeot said another plant in the western city of Rennes will shed 1,400 workers as it shrinks in step with demand for larger cars such as the Peugeot 508 and Citroen C5. Some 3,600 non-assembly jobs will also be scrapped across the country.
Combined with France's share of 6,000 European job cuts announced last year, the latest measures will reduce Peugeot's 100,000-strong domestic workforce by close to 10 percent, excluding subcontractors and service providers.
Workers at Aulnay downed tools after the announcement, halting production. Hundreds gathered under protest banners at the main entrance to the plant, the biggest industrial employer in the depressed, multiethnic Seine-Saint Denis district northeast of Paris.
"Varin has declared war on us, and we'll give him war," said local CGT union leader Jean-Pierre Mercier.
After initially rising, shares in family-controlled Peugeot were down 1.3 percent at 1345 GMT. The stock has plunged 32 percent since January 1, wiping 1.2 billion euros off the company's market value.
General Motors bought a 7 percent Peugeot stake in March to underpin the companies' planned alliance in purchasing, logistics, vehicle development and production.
Seeking to disarm the critics, Varin disclosed that a 700 million-euro ($857.5 million) loss at the core manufacturing division had dragged the group into the red. Operating cash flow is not expected to turn positive before 2015, he also said.
"LOST THE PLOT"
"People weren't expecting them to consume cash at such an alarming rate for such a long time," said Erich Hauser, a London-based auto analyst with Credit Suisse.
"This is a company that has run out of options," Hauser said. "Peugeot has lost the plot in European small cars, which were its traditional mainstay."
Peugeot's global sales fell 13 percent to 1.62 million light vehicles in the first six months - contrasting with a more modest 3.3 percent decline reported by Renault and a 10 percent gain for the Volkswagen brand.
Peugeot is one of the automakers most exposed to southern European markets badly hit by the region's debt crisis and lacks its German rival's export success or the support of a low-cost brand like Renault's Dacia.
Still, the French automaker's plans could prompt restructuring moves by rivals, analysts say, as the European industry battles overcapacity estimated at 20 percent.
Renault and Fiat are already reducing headcount, while GM's Opel division plans to close its Bochum plant in Germany by 2017.
"We would expect Fiat's CEO (Sergio) Marchionne to be watching today's announcement very closely," said Kristina Church of Barclays Capital.
Marchionne said last week that Fiat would be left with "one plant too many" in Italy if the auto market did not recover within 2-3 years, while predicting that it probably would.
His opposite number at Renault, Carlos Ghosn, has said the first major restructuring by a European manufacturer could open the floodgates to a rash of closures.
"The day somebody's able to restructure heavily in Europe, it's going to force all car makers to do it," Ghosn said in March.
ELECTION BARRIER
Peugeot executives had already outlined plans to close Aulnay in a document leaked to unions in June 2011, while warning that an announcement would be impossible before French elections which ended last month.
The company pledged on Thursday to convert the site for other industrial activities and transfer half its workforce to its other Paris plant in Poissy, west of the capital.
In his statement, Prime Minister Ayrault promised to ensure that Peugeot helps laid-off Aulnay workers find new jobs. The government is due to unveil a support plan for the wider auto sector on July 25.
But national CGT union leader Bernard Thibault slammed the new administration for failing to prevent the Peugeot job cuts and called the restructuring plan an "earthquake".
Social Affairs Minister Marisol Touraine said the layoffs were "unacceptable" from a company that had benefited from billions of euros in auto-sector aid during the last crisis.
The job losses at Peugeot may yet go further.
Some 2,700 workers at the Sevelnord delivery truck plant in northern France were asked in May to agree to a pay freeze, hundreds of job cuts and increased flexibility - or face closure after Fiat exits the joint venture as soon as this year.
Discussions with unions and prospective partners are "on the right track," Peugeot manufacturing chief Denis Martin said on Thursday. Future production now hangs on conditions including "the efforts that we're asking of the workforce", he added.
($1 = 0.8164 euros)
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