Tough Cost-Cutting Decisions Still Ahead for PSA

PSA Group’s newly acquired Opel unit faces likely plant closures and layoffs to meet a goal of lowering annual costs €1.1 billion ($1.3 billion) by 2020 and €1.7 billion by 2026, says the Financial Times.

In October PSA CEO Carlos Tavares complained of widespread inefficiencies at Opel facilities. Last month the company warned of “necessary and unavoidable” reductions at Opel.

But analysts tell FT the French company surprised them earlier this month by indicating that it could avoid mandatory job cuts, at least for now. The company says the keys will be normal attrition, early retirement schemes and shifting future Opel vehicles to PSA platforms and powertrains.

Investors are hoping that CEO Carlos Tavares can revive Opel as effectively as he did with PSA over the past three years. The company’s annual revenue has advanced only 4% since 2013. But operating profits over the same period swung from a loss of nearly €400 million to a profit of €3.4 billion ($4 billion).

But financial experts caution that Opel’s issues are different than those facing PSA in 2013. When Tavares arrived at PSA, the company was near bankruptcy. He promptly eliminated nearly 28,000 jobs, or about 25% of the company’s European workforce. The French government, stepping in as an emergency shareholder, allowed the employment cutback to help avert bankruptcy.

An analysis by Citigroup estimates Opel must eventually trim its workforce of 38,000 by 5,000-8,000. But FT points out that business conditions aren’t so dire, and Tavares won’t enjoy the same government support for drastic restructuring.