16 July 2012

The PSA Dilemma

Peugeot - Citroen (PSA) is in a difficult situation. Getting it sorted will take time and that is something the company is running out of. PSA want to close it's small Aulnay plant and lay off employees across France. This will affect something like 6,500 workers. So what is the situation?

PSA Problems: 1) Not that well run. 2) European economic downturn. 3) Too much reliance on Europe, specifically southern. 4) Over capacity and too many workers. 5) Inflexible working conditions in France. 6) A government prone to meddling in industry. You could now add to that an upset government and unions.

Solutions proposed by PSA: 1) Close the Aulnay plant. 2) Lay off thousands of workers.

Other solutions: 1) Government assistance. 2) More flexible work conditions. 3) Sell more cars in growing emerging markets. 4) Work more closely with other car makes to reduce costs.

Likely scenarios: The government and unions pressure will cause PSA not to close plants or lay off workers. The government will provide financial assistance, perhaps even taking a share in the company.

My take: PSA want to build more cars outside of France and in lower wage countries. PSA even opened a plant in Slovakia in 2006 while closing an efficient plant in the UK in the same year, just to save on wages. I really don't see how government intervention can be anything but bad. Decisions will then be politically driven rather than based on a sound business case. Therefore, nothing will really change and PSA will continue to struggle.

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