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PSA/Peugeot-Citroen to cut fixed costs by 30 percent

From Reuters| May 24,2007

PSA/Peugeot Citroen unveiled plans today to slash its fixed costs by almost a third to boost profitability and regain market share while trying to avoid new job cuts.

CEO Christian Streiff outlined plans to save 30 percent of fixed costs as European carmakers battle to improve efficiency in the face of stiff competition, particularly from Asia.

The shares fell by 5 percent in afternoon trade, after initial gains, as some investors took profits once the price hit a year high and analysts said the group remained vague on details.

"The fall is exaggerated," said analyst Georges Dieng at Ixis. "Streiff still needs time to come with a full plan."

PSA/Peugeot-Citroen, which trails Volkswagen AG in sales in Europe, plans to launch several new models by 2010, bringing the total of new models to 41.

European carmakers were handicapped by the strong euro, Streiff said.

"It is the strength of the euro which is creating an enormous handicap versus U.S. and Japanese rivals, allowing imports at unbeatable prices," he said, adding that the yen was a bigger problem than the dollar. He said the strong euro worked against maintaining an industrial base in Europe.

Streiff said PSA/Peugeot-Citroen aimed to regain lost market share in Europe, which fell to 13.3 percent in April 2007 from a peak of 15.5 percent in 2002.

"We're going to fight so that in 2007 we start climbing back up the slope as regards our earnings," he said.

Streiff added the company would try to avoid massive job losses or plant closures.

"The target for fixed cost cuts are for each and every factory. I can never say never but we want to avoid massive social plans. We want to avoid closing capacity with the risk of having to rebuild it later at high cost," he told journalists.

PSA/Peugeot Citroen would maintain a plan for savings of 600 million euros ($806.9 million) a year and on top of that cut its fixed costs and reduce purchasing costs despite rising raw material prices.

PSA/Peugeot-Citreon has suffered from thin operating profit margins -- 2 percent in 2006 -- and it took a battering after three profit warnings in little over a year.

PSA/Peugeot-Citroen has already announced plans to cut 4,800 jobs through voluntary layoffs in France in 2007, out of some 122,000, after a hiring freeze in 2006 and the closure of the Ryton plant in England.

Streiff, who was CEO at Airbus for 100 days before joining PSA/Peugeot-Citroen, said the group would launch 21 new models in the European markets and another 20 specifically for China and the South American markets.

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Streiff said both the Peugeot and the Citroen brands needed to be in the top five worldwide on quality terms.

"I dream about a PSA where the high quality reflex is in all we do," he said.

Ixis' Dieng said it was key for PSA/Peugeot-Citroen to improve its quality and focus on meeting the high quality and performance demands of buyers in Germany -- Europe's biggest car market and home of its biggest rival VW.

Streiff declined to give financial targets ahead of September but said the group had changed its global ambitions.

"The American dream is over for the moment, our main 'abroad' is Germany," he said. PSA/Peugeot-Citroen remains active in South America and China and will detail plans for these markets.

PSA/Peugeot-Citroen is studying what to do in the low price segment, where Renault has the Logan, how to boost the higher end of the market where it has the Citroen C6, and how to boost the city car segment.

PSA/Peugeot-Citroen will make the environment a main driver for its future and the majority of research and development spending will go into clean technologies.

The Peugeot family has a stake of some 30 percent in the company, and 45 percent of the voting rights, and the firm and staff have another 5 percent.

PSA was created in 1965 as a holding company for Peugeot which has a history going back to 1896, when a French family firm making bicycles, paper mills and coffee grinders branched out into motorized vehicles.

It acquired the struggling Citroen in 1976, mainly from tire group Michelin, and bought the European operations of Chrysler in 1979 for $1.

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