Peugeot to sacrifice workers for profit

PSA Peugeot Citroen boss Philippe Varin is not a popular man. His decision to cut 8,000 jobs and close a factory in France has rightly provoked shock and outrage there.

The “restructuring” plan involves the closure of and loss of 3,000 posts at the PSA factory and production line at Aulnay-sous-Bois in the Paris suburb of Seine-Saint-Denis.

Another 1,400 posts at Rennes and 3,600 non-production jobs, including 1,407 in research and development, are for the axe. This follows PSA’s November announcement that it was eliminating 6,000 jobs across Europe, including 1,900 full-time posts in France.

With unemployment already at 10 per cent and fears of tens of thousands of jobs going elsewhere in manufacturing, horror has been the understandable reaction across the political spectrum.

And nobody has any kind words for the car giant’s boss.

So Varin is doing his best to shift the blame. To start with, onto his own workers, who he asserts are too expensive

Varin told RTL radio: “We have the highest labour costs in Europe and 44 per cent of our production is in France, so it is necessary to massively reduce the burden on labour.”

France’s ruling Socialists, who have demanded that the nation’s No 1 car company think again about its devastating jobs cull, are not letting him get away with what they describe as the “easy” game of blaming the price of workers.

For starters, the claim is just plain wrong.

The Socialist government points out that labour costs are higher in Germany. The official statistics agency l’Insee, in a study published in February, found the hourly labour cost in Germany – where the car industry is doing very well – to be the highest in Europe, 29 per cent higher than in France.

The president of the Socialist group of MPs in parliament, Bruno Le Roux, has accused Philippe Varin of “shirking its responsibilities.

‘While thousands of families and whole territories are about to suffer the consequences of the PSA redundancies Mr Varin’s statements explaining away the problem as the cost of labour are disgraceful and shocking,” he said.

“When in 2010 Mr Varin quadrupled his salary, bringing it to $3.25 million (£2.6m) the issue of labour costs was not the concern that it is today,” charged the MP for Seine-Saint-Denis, the depressed area where the doomed factory is the largest industrial employer.

“It is time that CEOs stop shifting their responsibilities onto the state and the taxpayer. It is primarily the lack of strategic vision of the direction of PSA that has put the group in the difficulties it faces today.”

Unions point out that the workforce, including those facing the dole, has significantly increased productivity over the past decade.

They have been trying to get to the bottom of Varin’s cost claims too. Certain models just cost too much to produce, management says. But when pressed for details the company draws a blank.

Unions are also confused about the story behind the closure. PSA says it had to act to slash costs – by $1 billion – because its sales plunged 20 percent in Europe in the first quarter, and it faces a first-half loss of $700m (£550m) this year.

But documents seen by the CGT trade union show the company was planning the closure up to two years ago, when the business was achieving great results – indeed it sold 3.6 million vehicles, a record.

As Arnaud Montebourg, the minister for Industrial Renewal, said in an interview with France 2 on Friday, the company had paid out huge dividends to shareholders and spent millions buying back its own shares to increase their value for shareholders. “This wasn’t done for investment or to improve competitiveness. These are financial transactions of convenience.”

In its narrative justifying the 8,000 jobs cull PSA management also omitted to mention the impact of the French government’s economic embargo of Iran.

After France, Iran is the carmaker’s second-largest market, buying 450,000 cars a year.

In fact if PSA hadn’t been banned from selling to the country overall sales would have held up.

So in a sense the government has a very specific moral obligation to the workers of Aulnay-sous-Bois. The most obvious move would be to lift the embargo. But France under President Francois Hollande remains wedded to the West’s cold war against Tehran.

The unions and the Front de Gauche, which comprises communists, disillusioned socialists like Jean-Luc Melenchon and other radical leftwingers, say the state could and should block the layoffs.

Criticising the carmaker’s management for paying out dividends of $200m in 2011 and a year later moving to shut down modern plants “for the sole benefit of shareholders,” Marie-George Buffet of the French Communist Party has called on the Socialists to “take the necessary measures to revive the auto industry in our country,” including introducing legislation that bans profit-making companies like Peugeot from dismissing workers.

Another approach could be to challenge the group’s strategy of shift working from some factories, like Aulnay, in order to increase work intensity at others – in this case Poissy, Mulhouse and Sochaux, which are effectively working at overcapacity – at 130-140 per cent on 24-7 continuous shifts.

That boosts profits. But it has also ultimately destroyed jobs at Aulnay. “The government should force PSA to share the work out between the factories so that everyone can work,” says PSA union rep Jean-Pierre Mercier.

The government could arguably help most though by finding ways of boosting demand for the company’s products.

It’s been done before in France – in 2009 incentives were given for drivers to trade in old cars for new, more efficient models.

And more broadly it could promote policies at home, in Europe and globally that boost growth rather than undermine it through spending cuts and raising regressive taxes hitting middle and lower income groups – the Socialists are, to their credit, doing something about this one. A war on austerity will lift car sales.

President Hollande has now weighed into the affair, stating over the weekend that Peugeot’s jobs cull was “not acceptable,” a declaration that sent the company share price diving as the prospects of quick profits and fat dividends on the back of the company’s workforce faded. However, Hollande was short on specifics.

One solution doing the rounds which could be announced on July 25 at a summit dedicated to saving the French car industry is a cut in employer social security contributions, thereby reducing the cost of labour.

This may protect jobs today but would create a hole in workers’ welfare funds that will need to be plugged somehow. And it won’t stop fat cats like CEO Varin and his big shareholders coming back at a later date for more servings of cream paid for by the workforce.

The arrival of a left government in France should mark a “radical change” from the previous right-wing administration’s laissez-faire attitude to France’s rapidly escalating manufacturing crisis, Buffet argues.

So far the response has been pretty timid. But with popularity ratings falling seven points to 56 per cent in the last month according to one recent pollster, Hollande needs to come up with something altogether more ambitious.

This article was originally written for Morning Star.