For the past decade or two, folks in North America – particularly in the US and Canada – have watched all automobile manufacturing plant after plant being shuttered, particularly among plants operated by Chrysler, Ford, and GM. Now, it’s finally Europeans’ turn to witness what had been a very rare event occurring a bit closer to their homes.
French automaker PSA/Peugeot-Citroen announced that it plans to close its Aulnay, France manufacturing plant. The company will also reduce capacity (and employment) at its Rennes, France plant. Aulnay currently builds the Citroen C3 subcompact (pictured above). Production of the C3 will move to the Poissy plant (located west of Paris), which currently builds the Peugeot 208 subcompact. Rennes builds larger cars – the Citroen C5, C6, and Renault 508 mid-sized vehicles – which have fallen out of favor in Europe as the continent’s economy slides into recession.
As automakers have improved efficiency – building more cars with fewer people through the use of automation and more thoughtfully-designed production processes and modular vehicle components – they have needed fewer employees and fewer plants. Couple that trend with the fact that there are more competitors fighting for a pie that’s about the same size as before (if not a bit smaller), and you have a recipe for overcapacity.
As we pointed out last month when GM confirmed that it is working to shutter its plant in Bochum, Germany, plant closures in Europe are quite rare. Fiat pulled one off not long ago in Sicily (and has threatened that it may need another without more union concessions). Closures in Europe, and particularly in socialist-leaning countries such as France (whose new president hails from the left-leaning Socialist party) make factory closures politically-charged events. Couple in state aid to automakers (and don’t forget that Renault is 15% owned by the French government) and it is very, very painful to close a plant.
Given this background, the French government is furious about the announced closure. “We cannot accept something like this,” said Social Minister Marisol Touraine. He noted that the French government has given PSA 4 billion euros in state aid over the past several years.
The thing is, PSA really has no choice. The company is hemorrhaging cash at a rate of 200 million euros per month, and just reported a first half operating loss of 700 million euros. PSA has already sold additional shares of stock to help bolster its balance sheet, but with a market value of 2.54 billion euros (after a 73 percent stock decline over the past year), the status quo is unsustainable.
When we talked about the GM-PSA/Peugeot-Citroen tie-up back in February, we noted that the GM tie-up would not solve both companies’ overcapacity problems (saying nothing of the larger industry’s overcapacity issues). At least two plant closures (GM’s Bochum and PSA’s Aulnay) are going to help somewhat, but a bigger shakeup is still necessary. Think about what Chrysler and GM experienced in terms of job losses and plant closures in 2008-2009, and how painful they were for their local communities and their workforces – but now look how much stronger and more competitive those companies both are mostly as a result of that restructuring and right-sizing of their manufacturing footprints. That’s what Europe needs, but it remains to be seen whether politicians and unions will be bold enough to allow it to happen quickly, or whether it will drag on for years and drag the European non-luxury car industry with it.