Peugeot Citroen to slash costs, regain market share

PARIS, May 23 (Reuters) PSA Peugeot Citroen, Europe's second-biggest carmaker, unveiled plans on Wednesday to slash its fixed costs by almost a third to boost profitability and market share while trying to avoid new job cuts.

The French car maker's Chief Executive Christian Streiff outlined plans to save 30 percent of fixed costs as European car makers battle to improve efficiency in the face of stiff competition, particularly from Asia.

PSA, which trails Germany's Volkswagen AG in terms of sales in Europe, plans to launch several new models by 2010, bringing the total of new models to 41.

European car makers 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 that the dollar.

Streiff said PSA 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.

He also said 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 costs,'' 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.

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

The company has launched a restructuring plan called ''Cap 2010.

Purchasing costs would need to be cut by 6 percent per year, up from four percent, partly by buying more from low-cost countries.

''We now have put commandos in place that will monitor closely the price developments at suppliers and any overruns will quickly arrive at the CEO who will ask the supplier CEO for an explanation,'' Streiff said, adding the car industry would have to face high raw material costs for some time to come.

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

TOP FIVE PSA shares were up 0.8 percent at 61.80 euros in mid-morning trade.

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

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

He declined to give financial targets but said the group had changed its ambitions.

''The American dream is over for the moment, our main 'abroad' is Germany,'' he said.

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

PSA shares trade on a 2009 price earnings multiple of around 9 times compared to roughly 7 for Renault and 11 for Daimler and Volkswagen.

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 five 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 motorised vehicles.

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

REUTERS PBB DB2001