Aulnay, north of Paris, builds the Citroen C3. That  production, and 1,500 of 3,000 workers will be consolidated at Poissy which makes the C3, DS3 and Peugeot 208

Aulnay, north of Paris, builds the Citroen C3. That production, and 1,500 of 3,000 workers will be consolidated at Poissy which makes the C3, DS3 and Peugeot 208

PSA Peugeot Citroen on Thursday said it would close its Aulnay small car plant in northern France in 2014 with the loss of 3,000 jobs but could transfer up to 1,500 to Poissy where small car production will be consolidated. It will also axe 1,400 of 5,600 posts at Rennes. Another 3,600 posts will be axed in corporate roles.

The moves are part of a plant to restore PSA's "competitiveness and secure its future" following "sustained contraction in European demand": down 8% in 2012 and down 23% between 2007 and 2012.

PSA said group overcapacity was getting worse, with European plants running at 76% utilisation in the first half of 2012 (from 86% the previous year). This rate is even lower in the small car segment, which accounts for 42% of PSA Peugeot Citroën sales and where most of the competing models are made in low-cost countries. The group would report a net loss for first-half 2012.

In the greater Paris area, the group currently has two factories specialising in small car production, Aulnay for the Citroën C3 and Poissy for the Peugeot 208 and the Citroën C3 and DS3. Both are currently working undercapacity and will be consolidated at Poissy.

Workers will leave by "voluntary separation" but 1,500 should be able to transfer from Aulnay mainly to Poissy by "inplacement" positions.

"Outplacement programmes would offer a comparable proportion of employees job opportunities in the Aulnay area," PSA claimed.

"A revitalisation plan to convert the facility to manufacturing or automotive-related activities, including Group activities, will be implemented in association with all of the stakeholders concerned," it added.

Output at Rennes, which makes the Peugeot 508 and Citroën C5 and C6, is being impacted by the decline in European demand for large sedans, which is sustainably trending downwards.

"A reorganisation in line with foreseeable production volumes is therefore indispensable before engaging the capital expenditure to prepare for the production of a new model," PSA said.

That means axing 1,400 of the 5,600 employees who will either be found work elsewhere in the group or outside.

The news was given to the Peugeot Citroën Automobiles Central Works Council by chairman Philippe Varin.

PSA Europe sales declined 10% in the first half in a market off 8% due to exposure to demand in Southern Europe. Given the need to adjust inventory, group production contracted by 18% over the period.

As in second-half 2011, PSA's Automotive Division is expected to report a recurring operating loss in first-half 2012, estimated at around EUR700m. Since mid-2011, the group has been consuming around EUR200m in cash a month and will end the first-half with a net loss.

Varin said in a statement: “I am fully aware of the seriousness of today's announcements, as well as of the shock and emotions they will arouse in the company and its stakeholding environment. The depth and persistence of the crisis impacting our business in Europe have now made this reorganisation project indispensable in order to align our production capacity with foreseeable market trends. We are committed to implementing the proposed measures while pursuing exemplary social dialogue and profoundly respecting our values.

”The project presented today should enable the Automotive Division, the heart of our company, to get back on track and restore its ability to execute its strategy. In this way, we will secure the group's future and our car production base in France."

At both Aulnay and Rennes, a French employment protection plan will be presented to employee representatives for consultation and information. Employees will be offered opportunities for voluntary redundancy until mid-2013. This scheme will focus on measures to support job placements for employees and the revitalisation of the local employment area, in liaison with local authorities and stakeholders. The consultation will be part of an open process taking full account of the jobs-related expectations and concerns of employee representatives. It will also include a careful review of every alternative, in a commitment to offering every employee an appropriate solution for his or her employment problem.

As well as axing manufacturing jobs, PSA said its "corporate structures must be aligned with business volumes".

"The group therefore has to continue reducing costs and improving its operating efficiency, which should lead to the reduction of 3,600 jobs across all of its facilities in France. Employees will be offered the possibility of participating in a voluntary redundancy plan."

The jobs cut project is expected to help operating cash flow return to breakeven by the end of 2014, based on current automotive market conditions and before the impact of the alliance with General Motors is fully felt.

It strengthens measures introduced in early 2012 and now under way to reduce costs by EUR1bn, involving keeping inventory under control, prioritising capital expenditure projects and disposing of assets.

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