PSA and Dongfeng to close two car assembly factories, cut jobs
August 20, 2019 Category China News Round-up, Weekly
Peugeot maker PSA Group and partner Dongfeng Group have agreed to cut thousands of jobs in China and close two of their four shared assembly plants, in a last-ditch bid to curb mounting losses. Dongfeng Peugeot Citroen Automobiles (DPCA), the carmakers’ joint venture based in Wuhan, capital of Hubei province, will halve its workforce to 4,000 as it closes one plant and sells another under plans agreed upon in July between PSA Chief Executive Carlos Tavares and Dongfeng Chairman Zhu Yanfeng. Both carmakers declined to comment on details of their restructuring plans. The agreement may avert a threatened withdrawal by PSA from the 27-year-old partnership with Dongfeng or plans to leave China altogether. “We’re just a whisker away from having to withdraw from China,” said one person close to the PSA board. “It really is that serious.”
PSA is attempting a reboot in adverse conditions. Once an auto industry cash cow, the Chinese market contracted last year for the first time since the 1990s and is expected to decline another 5% in 2019. Many Western carmakers were already struggling before the downturn, as Chinese consumers abandoned their mid-market brands for increasingly assertive domestic rivals, including the global manufacturers’ own local partners. PSA’s China problems go back even further, spanning four years of plunging sales and €400 million written off of its DPCA stake, which is now valued at €500 million. Its sales in China shrunk to 251,700 vehicles last year from a 2014 peak of 731,000.
DPCA will now close its original assembly plant, Wuhan 1, and redevelop the site in a commercial partnership with the local government. The factory’s equipment and production will be transferred to the Wuhan 3 facility. The staff level across DPCA will fall from 8,000 to 5,500 by the end of 2019 and to 4,000 within another three years, as it also sells off its idling Wuhan 2 facility.
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