France’s Hollande says Peugeot job cuts not acceptable

PSA Peugeot Citroen’s decision to close a factory and cut an additional 8,000 jobs is unacceptable, President Francois Hollande said, pledging to lean on Europe’s second-biggest carmaker to renegotiate the plan.

Peugeot said two days ago that it will cut a total of 14,000 jobs and shut an auto plant in France for the first time in two decades to stem widening operating losses.

“The plan in the current state is not acceptable,” Hollande said today on national television.

Hollande was elected in May, promising to prevent a “parade of firings” after the election. Peugeot’s shares plunged 7.7 percent yesterday on concern that the government may amend Peugeot’s decision to reduce costs and trim production capacity, but there isn’t much wiggle room to do so, said Antonio Barroso, an analyst at Eurasia Group in London.

“The range of options is limited,” Barroso said. “The Peugeot crisis is a powerful reminder of one of the most important problems facing France, which is lack of competitiveness.”

Hollande said he will consider incentives to spur sales of environmentally friendly cars and study the possibility of providing credit for vehicle purchases, though he won’t adopt cash incentives like President Nicolas Sarkozy’s administration did to counter a recession in 2009.

With jobless claims at a 12-year high and the unemployment rate at 10 percent, Hollande said that generating jobs is his top priority. Besides Peugeot, companies including Air France- KLM Group, Carrefour and drugmaker Sanofi are mulling staff reductions in the face of stalling economic growth.

Shared Effort

“It’s true we have a competitiveness problem,” Hollande said today. “There is an effort to be made but it needs to be shared fairly.”

The government wants to avoid cutting salaries but is considering shifting some social charges currently paid by employers to the CSG levy, which is paid on all forms of income including wages, pensions and capital gains. Raising the CSG is “one option among others,” he said.

The economic situation is already costing the Socialist president politically. Support for Hollande has dropped 7 points in the past month to 56 percent, according to an Ifop poll published July 11. The survey of 1,005 voters has a margin of error of about 3 percentage points.

“Peugeot is an emblematic case that will leave its mark on people,” said Jerome Fourquet, a pollster at Ifop in Paris. “The political stakes are huge.”

Losing Cash

Peugeot, Renault SA and Fiat SpA have posted the biggest sales declines this year in Europe, where Peugeot now expects the car market to contract 8 percent. Moody’s Investors Service in March was the last of the three main credit-reporting companies to cut Peugeot’s debt rating to junk. The French carmaker has been consuming about 200 million euros ($245 million) in cash monthly since the middle of last year.

The state can’t be “indifferent” to Peugeot’s troubles, Hollande said. “The government will name an expert who will report by the end of the month to determine the reality of the situation of Peugeot.”

The company will stop production at its 39-year-old factory in Aulnay, on the outskirts of Paris, in 2014 and focus the building of small cars at a nearby plant in Poissy, it has said. The Paris-based automaker will also lower production at a plant in Rennes to slash operational costs.

Peugeot, which announced 6,000 job cuts last year, delayed the announcement by several months as Hollande and Sarkozy, his predecessor, campaigned to win France’s presidential election.

“There was a lie,” Hollande said. “This plan wasn’t announced even though it was already in the pipeline. It was delayed until after the election.”

Peugeot’s Aulnay plant could continue to exist as an industrial site, Hollande said. Industry Minister Arnaud Montebourg is considering the government’s options and will outline a plan on July 25, he said.

--Editors: Marthe Fourcade, John Deane, Kristen Hallam.

To contact the reporters on this story: Mark Deen in Paris at markdeenbloomberg.net Andrew Roberts at aroberts36bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertlingbloomberg.net