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Car Workers Laid Off As European Car Sales Slump

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Dr. Emmanuel Martin writing for the World Review reported that French car giant PSA Peugeot Citroen saw car sales plummet by 16.5 per cent in 2012 and its market share in its major European markets slump, as it posted a five billion euros loss.

The ailing car maker - Europe’s second largest - had already announced on February 7, 2013, that it had to write down the value of its automotive assets by 3.9 billion euros because of the parlous state of European car markets.

The disastrous performance, with less than three million cars sold, reflects the worst year for new car registrations in Europe for two decades.

This is, in part, caused by the failure of European countries to recover from the damaging financial crisis which affected Europe in 2008-2009.

Other large car manufacturers, including Ford and General Motors of the United States, also experienced major sales declines in Europe.

Europe’s car market has now contracted by 20 per cent since 2007.

Total car registrations in the EU in 2012 reached 12.1 million units, down by 8.2 per cent compared with 2011, according to the European Automobile Manufacturers Association.

Car sales were reduced by 38 per cent in Portugal, 20 per cent in Italy, 13.9 per cent in Spain and 13.4 per cent in France.

Germany - Europe’s largest car market and a stronger economy than most in the eurozone - saw car sales drop by 2.9 per cent.

In October 2012 PSA - which employs 211,000 workers in 32 factories in six countries - faced a crisis after its turnover declined for the third consecutive quarter.

The French government stepped in with a seven billion euro guarantee to cover PSA’s home bank, which sells loans to customers buying Peugeot and Citroen cars. The government asked the company to avoid making French workers redundant.

But Peugeot needs to cut costs by reducing capacity by a quarter to regain profitability. This means restructuring to stop losses of 200 million euros a month caused by a drop in car sales.

PSA is looking to downsize its domestic workforce by 17 per cent or 11,200 French jobs. Workers refused to accept the closure of some of the factories and at Aulnay outside Paris - which is to lose 3,000 workers by 2014 - they went on strike.

A new partnership on three new models with General Motors-Opel in Europe is expected to reduce costs by achieving economies of scale through common production platforms and purchasing. French car maker Renault, in which the French government holds a 15 per cent stake, was the worst performer in Europe among the continent’s manufacturers.

It has announced 7,500 job cuts after suffering a 19.1 drop in car sales across the EU in 2012.

The job losses are equivalent to 17 per cent of its domestic workforce and will deliver annual savings of 400 million euros without closing plants or forcing through redundancies.

Unlike Peugeot, Renault’s strategy has been to develop into a global group by partnering with Japanese car maker Nissan and buying Romanian Dacia.

Some experts fear a ‘peak car capacity’ has been reached in Europe which has better, more durable cars and a younger car fleet compared with the United States.

But a depressed European market does not explain everything.

Sales of the Volkswagen group - which includes Audi, Seat, Skoda, Bentley and Porsche - declined by 0.3 per cent in Europe in 2012.

The group achieved more than nine million global car sales in 2012, an increase of 11.2 per cent and it has announced a three-year 50 billion euro investment plan.

The Volkswagen group has been able to use economies of scale between its different brands to save costs at the production level. Any of the group’s production platforms can produce a Volkswagen, an Audi or a Seat, meaning that up to 70 per cent of the cost of a car can be shared with other models.

But Europe’s car makers face a real wake-up call with news that China’s car industry is poised to produce more vehicles than Europe in 2013 for the first time.