PSA, Dongfeng drop two China plants, halve workforce08/13/2019
Things are not looking so good as the world’s largest auto market loses steam. According to a document seen by Reuters, PSA Group and partner Dongfeng Group have agreed to cut thousands of jobs in China and drop two of the four shared assembly plants.
The move is a last-ditch bid to curb mounting loses derived from slowing sales and fixed costs – PSA Group’s sales in China shrunk almost threefold to 251,700 vehicles last year from a 2014 peak of 731,000. “We’re not giving up. We are still pursuing our action plan to cut fixed costs,” a PSA spokesman said.
Dongfeng Peugeot Citroen Automobiles (DPCA), the two carmakers’ joint venture based in Wuhan, central China, will see its workforce halved to 4,000 in the next three years as it closes the Wuhan 1 plant and sells off the idling Wuhan 2 facility, of which discussions with potential buyers are ongoing. Tooling and production will be transferred to Wuhan 3.
Additionally, underperforming models will be dropped from the Peugeot and Citroen line-ups. Turnaround plans include streamlining the product portfolio and focusing on selling more profitable models, a move mirroring its European strategy that is currently bearing fruit.
The situation is undeniably dire in China. While both automakers declined to comment on the details of this restructuring plans, the latest consolidating measures may have just averted a complete withdrawal threat by PSA. A person close to the PSA board said: “We’re just a whisker away from having to withdraw from China. It really is that serious.”
In 2018, the China auto market contracted for the first time since the 1990s, and is expected to decline by 5% on the back of worsening US-China trade war. Many non-China car brands are struggling to maintain momentum, as customers shift from mid-market brands to the increasingly assertive domestic rivals.
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