PSA Unveils New Cost-Cutting Plan After First-Half Loss

PSA Peugeot Citroen says it aims to reduce annual structural costs by €1.5 billion by 2015 because of the "depth and persistence" of the Europe's financial crisis.

The cuts are in addition to the €1 billion PSA aims to save this year, half of which was realized from January to June. The company unveiled the new plan as it reported a swing to a net loss of €819 million in the first six months of 2012 from an €805 million profit a year earlier.

PSA's three-year program, dubbed "Rebound 2015," includes the previously announced restructuring in France. Under that plan, the company would shrink output, shutter an assembly plant and shed as many as 8,000 jobs. Rebound 2015 also involves shrinking capital spending by €550 million per year and reducing annual product costs by €350 million.

Analysts complain that PSA should be able to make such relatively modest cost cuts much sooner.

Operating earnings from continuing operations plummeted to €1 million from €1.2 billion in the first half. The company blames much of the decline on higher raw materials costs and, in Europe, unfavorable product mix and weaker sales.

Revenue slid 5% year on year to €29.6 billion in the six-month period. Worldwide sales fell 11% to 1.62 million vehicles, including a 14% drop to 994,000 units in Europe. Volume rose 8% to 209,200 vehicles in China and 15% to 41,000 units in Russia. But sales plunged 21% to 122,000 units in Latin America as Brazil's auto market stagnated.

PSA recorded a €674 million charge in the first half for restructuring costs and losses on impaired assets. The company expects to book €500 million-€600 million in restructuring expenses from July through December.

Separately, Fitch Ratings downgraded PSA debt by one notch to BB, which is two steps into junk bond territory.