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Peugeot: Rescued, but constrained by bailout

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During the afternoon shift change at Peugeot’s factory in Aulnay-sous-Bois just outside Paris, workers walk in and out of the factory gates as union members hand out leaflets and sing an old, workingman’s tune.

“I kissed my girl by the factory hall,” croons a union leader. “Dirty old town, dirty old town.”

This dirty, old town has a bleak future. Peugeot plans to close the factory here where Patrice Zahn has worked for the past 17 years. So he’s come out to fight for his own job and those of the roughly 3,000 others who work here.

“It would be the best if we can keep the plant. It will be difficult. But there is no good reason to close this plant. It’s only for money,” he says.

It’s a lot of money, from Peugeot’s perspective. Car sales in Europe have nosedived throughout the debt crisis. Peugeot is losing around $250 million a month, and desperately needs to reduce costs. Overall, the company says it wants to shed 8,000 jobs.

“It is the only option that we have for Peugeot’s long-term survival,” says Anne-Laure Desclèves, a Peugeot spokesperson. “So we will do it even if it is painful.”

However, closing a factory in Europe is never easy. Unemployment in France is over 10 percent. French President, François Hollande, called Peugeot’s plans “unacceptable”, and he could have a say in the matter.

Last month, Peugeot secured a $9 billion lifeline from the French government. That will keep Peugeot out of bankruptcy, but in return, French politicians will demand the company keep jobs, not cut them, says Philippe Houchois, an auto analyst at UBS.

“The side effect of this support is that it constrains the ability of Peugeot to restructure and become profitable again on it’s own,” he says.

If it’s not profitable, the company can’t invest in new models once the European market recovers — a vicious spiral that, Houchois says, Peugeot may never recover from.

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