French car making giant Peugeot Citroen is to cut 90 jobs at its Coventry headquarters. The company has said that it needs to restructure and hopes to achieve the cuts through voluntary redundancy.
The news has come as a shock to unions and observers as the firm has been doing well in the UK of late. The combined market share of Peugeot Citroen is up over the last year, and the Peugeot brand has been winning plaudits by successfully shifting its models up market to earn more premium per car sold.
What’s driving this restructuring is ultimately the dismal state of the parent company which has been struggling for years. Since 2008 the French state has bailed out PSA Peugeot Citroen to the tune of €12bn. Back in February PSA Peugeot Citroen agreed an injection of cash by China's Dongfeng Motors which took a 14% stake in a move that further diluted the Peugeot family's control.
Earlier this year, the new PSA Peugeot Citroen boss Carlos Tavares unveiled the firm’s ‘Back in the Race’ strategy. It wasn’t particularly ambitious, but did aim to hack away at the firm’s sprawling product portfolio and by boosting expansion in the Asian growth markets.
Indeed, PSA group's product line-up seems to lack any sort of strategic direction. It will be culled in an overdue effort to cut costs and focus investment on new product development that can offer maximum bang per buck (or Euro). That means halving the number of overlapping and competing models to around 25, in an effort to boost margins.
So that in part may be a reason for fewer staff at the Coventry head office; there are likely to be far fewer new models; fewer marketing and other staff are likely to be needed and staff may well work across the two brands more.
Of course, we’ve been here before. When Peugeot's £25m Coventry headquarters was built in 2008 it was intended to house both Peugeot and Citroen alongside. In 2012 Citroen moved in and jobs were cut as functions were shared across brands.
At the time, the firm stated that "there is a large reorganisation taking place… It makes more sense to run the business on one site and it will mean a reduction in head count”. Plus ca change, as they say in France; this reorganisation now seems to be being pushed a stage further, with greater integration across the brands.
More generally the firm has benefited from a slight European recovery, and in the three months to the end of September revenues rose 1.6% year-on-year, with sales up 5.4% to 644,000 vehicles. Sales to China rose 44%, indicating where the action really is, in turn suggesting that the Dongfeng Motor investment could be a shrewd move. But excluding China and south-east Asia, sales fell 4.8% to 461,000 vehicles.
Nevertheless, PSA recently lifted its 2014 European car market growth forecast to 4%-5%, from the previous 3%. Around 60% of PSA sales are in Europe, and the firm had been especially exposed by the Eurozone downturn. The company also said recently that markets in Russia and Latin America would continue to shrink. PSA's revenues for the last quarter were up 1.6% to €12.2bn (£9.6bn).
Despite some modest signs of improvement, PSA still faces big challenges. It still has over capacity in Europe, and is too reliant on what is a fairly stagnant European market (the UK excluded). And like other mid-range brands, it is being squeezed from below by the likes of Kia and Hyundai, and from above by the premium players such as BMW, Audi, Daimler and JLR.
Life in the ‘squeezed middle’ is only going to get tougher for the firm, despite its recent progress.
* Professor David Bailey works at the Aston Business School