PSA is nearing deal with union over cost-cutting proposal

Article by Anita Panait, on October 23, 2013

PSA/Peugeot-Citroen is close to striking an agreement with unions to cut operating costs, two sources said. Unions representing over 50 percent of PSA workers said they will back a proposal to cut overtime pay and freeze salaries in return for investment guarantees and new models that will hike output capacity utilization.

Union support for its cost cutting plans will enable PSA to focus on assessing the possibility of selling at least EUR3 billion ($4.1 billion) worth of shares to Chinese partner Dongfeng Motor and the French government, giving them equal stakes of around 20 percent. Sources said that PSA is aiming to ink a deal with unions by the end of 2013, paving way for a possible capital increase. PSA is scheduled to release its revenue figures for the third quarter of 2013 on Oct. 23.

The carmaker’s auto unit posted EUR510 million in operating losses in the first half of 2013. The Peugeot family – a 25.5-percent stakeholder at PSA – is divided over how much to invest on any capital hike and is even mulling not investing at all, a source told Bloomberg.

Another source said that General Motors Co., which holds a 7-percent stake in PSA, may withdraw from its alliance with French carmaker if Dongfeng Motor becomes a part-owner since the US carmaker is partner with SAIC Motor Corp. in China. GM has the option to end its partnership with PSA should there be a change in control of the French carmaker.

Dongfeng Motor is offering to pay around $1.63 billion to secure a stake of 30 percent in PSA, as reported in the Chinese media. Dongfeng already functions as PSA's partner in China, with their joint venture operating three assembly plants in the country.
If Dongfeng makes such move, it would a problem for PSA's partnership with General Motor's Opel-Vauxhall brands. GM owns a 7 percent stake in PSA and the two carmakers have announced plans to merge production of their respective compact MPV and SUV models onto a PSA platform.

PSA posted $6.8 billion in losses in the 2012 financial year with its automotive revenue dropping by more than 10 percent. In June this year, there were reports that the Peugeot family, which holds a 25.4 percent stake in the business, may step back to allow GM to take over the carmaker.

In addition, there would domestic issues facing any agreement between Dongfeng and PSA. Discussions are ongoing between the PSA and the unions to cut overtime pay as well as freeze salaries in exchange for more French production and investment. Any agreement between Dongfeng and PSA will need these talks to be completed.

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