Peugeot rescued, Ford closes plant

The European auto industry sank deeper into crisis on Wednesday with Peugeot Citroen needing seven billion euros in state aid and Ford ditching a plant and thousands of jobs in Belgium.
Announced job losses at Ford and PSA Peugeot-Citroen now total 12,300, with the toll much higher when indirect jobs are taken into account.
“It’s a nightmare, a catastrophe for Genk and for the region,” said Wim Dries, mayor of the northeast Belgian city of Genk, where the Ford plant is located. Local media headlined the decision “a bitter pill” for the country and for the Flanders region of Limbourg, near the Dutch border.
Deeply troubled Peugeot waived its dividend and its shares crashed to a 26-year low of 5.38 euros in early trades before regaining some ground to close with a loss of 4.57 percent at 5.56 euros.
Both Ford and Peugeot have warned that they are hugely burdened by overcapacity in Europe, where demand has contracted despite price cuts by many car manufacturers.
In stark contrast, Europe’s number one carmaker Volkswagen said its third quarter net profit had leapt by 60 percent, though its underlying or operating profit fell by 19 percent to 2.343 billion euros ($3.0 billion).
The Peugeot-Ford announcements illustrate the effects of four years of crisis, beginning with a financial meltdown in the banking sector and then austerity measures to fight the eurozone debt crisis.
Several European governments responded to the initial wave of crises with “cash for clunkers” subsidies, but as these ran out and recession bit in several markets, car sales slumped again.
Auto analysts forecast more tough times ahead, with Yann Lacroix at Euler Hermes saying that “output will see another, strong deterioration towards the end of the year.”
Standard & Poor’s has estimated it will take six years before Europe is back to its prior level of 15 million new car registrations per year, and the Roland Berger consultancy says that between five and 10 more western European plants could close in the next two to three years, with the loss of up to 80,000 jobs.
The VW group has pulled through with strong sales of higher-range vehicles aimed at global markets with localised production.
Peugeot has already announced 8,000 job cuts and a plant closure which the French government wants pruned back.
The firm reported that sales had fallen by 3.9 percent in the third quarter and that it was waiving dividends for three years, the duration of a seven-billion-euro state guarantee for its credit arm BPF, which provides financing for dealers and customers.
The French government said Peugeot has also agreed to reshuffle its supervisory board to include the admission of a representative from its workers and another independent one, who analysts suspect will act as a link to the government.
The fear of state intervention was cited as a factor driving Peugeot’s share price lower on Wednesday.
In Belgium, the decision by Ford to close its “under-utilised” factory in Genk by the end of 2014 will directly cost 4,300 jobs.
The plan is designed to “help to address manufacturing overcapacity stemming from a more-than-20-percent drop in total industry vehicle demand in western Europe since 2007,” Ford explained
— Peugeot’s strategic mistakes —
PSA Peugeot Citroen, a private-sector company still largely run by the Peugeot family, also announced on Wednesday joint-venture projects with its strategic partner General Motors (GM) of the United States, although unions said these measures lacked ambition.
Peugeot said its third-quarter sales fell to 12.9 billion euros owing to increasing competition and a weaker European market.
It warned that it now expected sales in Europe, its main market, to fall by 9.0 percent this year, instead of the 8.0 percent forecast previously.
The French car maker also now estimates that its net debt will rise to 3.0 billion euros at the end of the year instead of 2.4 billion euros.
The financial arm BPF said it would benefit from the state guarantees for three years.
This would enable BPF to borrow money on better terms and launch a savings plan for investors in France, as the financial arm of French rival Renault had done recently, said Peugeot finance director Jean-Baptiste de Chatillon.
The government said in a separate statement that one condition attached to the state guarantee was the creation of a monitoring committee on which the state, Peugeot and an independent administrator would sit.
“My government does not intend to hand out gifts, just like that, without commitments” from Peugeot in return, Prime Minister Jean-Marc Ayrault said.
An independent expert brought in to examine the politically sensitive job cuts had found that restructuring was needed because of strategic mistakes going back 20 years and said that the group had failed to seize the opportunities of globalisation.
In a separate statement, Peugeot announced a four-pronged programme for joint industrial projects involving new models with GM.