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Scotsman: French car giant cuts UK jobs

THE French car giant Peugeot-Citroën is to end production at one of its main UK factories with the loss of 2,300 jobs.

Thousands more jobs in supplier companies which depend on the Ryton factory are also now at risk in the West Midlands.

The factory in Coventry will stop making the Peugeot 206 model next year.

Jean Martin Folz, the chief executive officer of PSA Peugeot Citroën, told union officials the plan followed a detailed study during the first quarter of 2006 by the group of its industrial cost effectiveness which had "clearly confirmed the weaknesses for the Ryton plant".

The company blamed high production and logistical costs which it said meant the group was unable to justify the investment needed for the production of future vehicles.

"The group's proposal is that production at Ryton is brought to a close in two phases; in the first instance the factory, which today operates two shifts, moves to a single shift in July 2006, with production not continuing beyond mid 2007," said Mr Folz.

Derek Simpson, the general secretary of Amicus, said: "This is disastrous news for British manufacturing.

by Fran on Wed Apr 19th, 2006 at 01:05:39 AM EST
[ Parent ]
Considering the objections many of us here raise about the triumphalism of the UK press in its comparison of the British and French economies, we might feel justified in jeering at this news.

The French unions aren't taking it that way. They are saying this is a further loss of manufacturing base that concerns them too. That it's all part of a strategy of moving jobs to lower-labour-cost countries in Central and Eastern Europe. They express solidarity with the British workers and their unions. (Heard on French radio this morning).

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 19th, 2006 at 03:47:24 AM EST
[ Parent ]
Good for the French unions - they can recognize a trend when they see one.

Having said that, I don't think it's a given that the capacity being shed in UK will be replaced in Eastern Europe or anywhere else. Generally speaking, the conventional wisdom in the car biz is that there is excess capacity world-wide.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Wed Apr 19th, 2006 at 04:03:53 AM EST
[ Parent ]
No. What should we jeer about, really? Those people who lose their job are the same people in France, Netherlands, the USA, or anywhere, that are living at the whims of the multinationals.

I also noted that Blair whipped out his standard package in response and mentioned agencies providing "support and re-training opportunities". I always wonder how well that works - since it seems to work in several countries, such as Denmark.

This taps into the discussion Colman flagged some weeks ago: with the increasing reduction of production work, the unemployment in Europe is problematic. Except for services, I don't see from my rookie perspective what other sectors have the potential to incorporate more jobs.

by Nomad (Bjinse) on Wed Apr 19th, 2006 at 04:14:31 AM EST
[ Parent ]
"support and re-training opportunities", according to what I heard, are to be provided/financially supported by Peugeot. Tony doesn't miss a trick, does he?

As to what jobs can replace manufacturing jobs, of course we're always told they'll be in services. Britain has played the card of its advantage in financial services, and undoubtedly has a tight job market in that sector. OTOH, there is much less success in replacing job loss in the industrial regions.

Highly-qualified service jobs (in IT, for example) are threatened by outsourcing (I'm not just talking about the UK here, the US is an example that springs to mind). In the end, it's the menial jobs of service-to-people that can't be moved elsewhere. As DeAnander suggested, for "Service Economy", read "Servant Economy".

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 19th, 2006 at 04:30:53 AM EST
[ Parent ]
I think the only way to avoid a servant economy is to revert to self-employment (and cooperatives in capital-intensive work). A key component of the rise of modern free-market capitalism was driving independent farmers and artisans out of business through economies of scale, and turning them into salaried workers. If we really took "capitalism" seriously we'd encourage people to be their own capitalist instead of just being labourer-consumers.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 04:48:14 AM EST
[ Parent ]
How much of the existence of the middle classes is linked to the stability of salaried employment, the ability to take on debt to buy/build a home, consume and the like.

The period generally associated with proesperity and growth is also that of the rise of the salaried class.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 04:51:00 AM EST
[ Parent ]
After 100 years of Dickensian dystopia, yes. The small merchant or artisan that Adam Smith was so fond of all but disappeared in the scramble to industrialize the UK.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 04:54:45 AM EST
[ Parent ]
But I am not entirely sure. Maybe we should ask an actual economic historian of the first Industrial Revolution, like TGeraghty, for instance.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 04:59:52 AM EST
[ Parent ]
He could have mentioned that part... It sounds awfully like good government behaviour now. Interestingly, there's a parallel development in the Netherlands with NedCar, a Mistubishi factory, which is threatening to close down for some weeks now. There are rumours of strikes, but the tug-of-war between the government and the company to provide support afterwards is more vicious and less in the limelight.

there is much less success in replacing job loss in the industrial regions.

Are there some numbers on this? Since to me this appears really a crucial issue in the whole unemployment problem. I'd speculate that higher educated people, such as the high quality service jobs, have potentially a broader base. For example, in the Netherlands when the IT bubble popped, there was a shift among others to gaming industry, and with some remarkable successes.

"Servant Economy" - now that gets my four automatically! DeAnander had a flurry of posts and contributions before the Easter weekend, and I haven't had the pleasure to catch up, including kcurie's manifesto.

by Nomad (Bjinse) on Wed Apr 19th, 2006 at 05:01:16 AM EST
[ Parent ]
On the former industrial regions, my comment was based on the high numbers of people on Incapacity Benefit, rising to practically 25% of the working-age population in the Welsh (former) Mining Valleys, for instance. There's structural, long-term unemployment there that isn't reflected in the unemployment rate (though the government has said it must do something about it...) Yes, the workers involved are not highly-skilled.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 19th, 2006 at 06:06:49 AM EST
[ Parent ]
What is Peugeot doing with the factory, if it is "ending production"? How much is the factory worth to Peugeout, then? (I suppose very little). Can the workers buy the factory off Peugeot?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 04:35:01 AM EST
[ Parent ]
Why doesn't Peugeot make a deal with a Central or East European country, to start making some of their cars in the Peugeot factory? (I'm just assuming that some factory lines may be less equipped in CET Europe than in that factory in the UK)

This would raise the price of the CET cars, sure, may require lowering the UK salaries a bit, but would benefit everyone, including opening up a market in the UK for those CET cars.

Am I just dreaming? Am I just talking rubbish? I just got up, I have an alibi.

by Alex in Toulouse on Wed Apr 19th, 2006 at 04:38:50 AM EST
[ Parent ]
It's all about labour costs. It's cheaper to move the machinery to, say, Slovakia than to pay British salaries and benefits.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 04:43:47 AM EST
[ Parent ]
Alright, so Peugeot reads reports that say that Unit Labour Costs in Slovakia are among the best in the OECD. So they say "let's move our cars there".

But let's look at the numbers behind all of this.

Average labour cost for an employee in Slovakia is 137 euros per week (ie. 8,818 dollars per year according to http://www.state.gov/e/eb/ifd/2005/43039.htm).
Average labour cost for an employee in the UK is 508 euros per week (£18,300 per year).
This means the average manufacturing employee costs 371 euros more per week in the UK than in Slovakia. (caution: I am using the national average to calculate the manufacturing employee cost, so there will be a discrepancy here)

At the Ryton plant, there are 2,983 manufacturing employees making 4,280 Peugeots 206 per week.
So basically, the car per manufacturing employee ratio is 1.435 per week (ie. 4280/2983).

Thus, looking only at labour costs (there are many other differences between the UK/Slovakia, like taxes etc, but we'll focus on labour costs, since this is the argument that Peugeot puts forward), then a factory like Ryton, if moved to Slovakia, and obtaining the same manufacturing ratio there, would then produce cars that cost 258 euros less per unit.
(371 euros salary difference / 1.435 cars per employee).

258 euros on a retail price of 15 823 euros for a Peugeot 206, seems a ridiculous amount (I mean dealer margins alone can vary by 5% of the retail price, or 791 euros).

Thus to me the only sensible reason behind this move is shipping/distribution (ie. the UK Is a bit isolated, being in the corner of the EU). Labour costs are just a pretext ...

Did I get this wrong, now that I'm more awake? Please tell me, I haven't had my diet coca cola yet and may still be IQ-deprived :))

by Alex in Toulouse on Wed Apr 19th, 2006 at 06:09:28 AM EST
[ Parent ]
You raise an important point: even in manufacturing (or maybe especially in manufacturing) labor costs represent only a small fraction of total costs, and thus the huge apparent differences in wages ("they cost 5 times more"!) represent a small difference in cost, which is usually compensated for by a number of other things, like logistics, quality, quality control, PR (Toyota doubled or tripled their sales in France after building a factory here)...

Only in very labor-intensive industries for commoditised products (textiles, toys and the like) will the labor cost difference be overwhelming.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 06:18:01 AM EST
[ Parent ]
You call a 1.5% reduction in total production costs a ridiculous amount? You obviously haven't spent enough time in Business School, or cheated your way through Bottom-Line 101.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 06:39:30 AM EST
[ Parent ]
You capitalist fiend :))

ps: I hear that dealer margins in Slovakia, Hungary and a few other countries, are lower than in the UK (by up to 8% lower), because of a failure by the EU to harmonize dealer margins (or so I read). Maybe Peugeot just wants to diminish distribution costs (by being there) while also selling its cars on the local markets because of this too?

What's certain is that the labour cost argument is erected as the sole reason, and to me this is part of the neo-liberal agenda!

by Alex in Toulouse on Wed Apr 19th, 2006 at 06:44:55 AM EST
[ Parent ]
They don't want to sell cars in Central and Eastern Europe because of lower dealer margins: the market is less saturated and purchasing power is increasing there. If they can manufacture cars locally it makes a lot more sense than shipping them from Britain. I would like to see Peugeot's sales projections for the UK and Ireland vs. Poland, CZ, Slovakia and Hungary.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 06:54:09 AM EST
[ Parent ]
I do agree that the shipping/distribution argument is probably the major reason that motivated this move (that and the 206 being an old model, and equipment being fully amortized, like dvx suggests).
by Alex in Toulouse on Wed Apr 19th, 2006 at 06:55:48 AM EST
[ Parent ]
They said somewhere only 25% of the components Ryton is using are made in UK.
The UK lost a big chunk of their automotive industry as a system, and it pays out now: as long as Peugeot sell some cars in UK, shipping of the cars to CET and UK balances itself if you have to chose between the 2 locations. But the bulk of the supplyer industry moved already east, or is in Germany/France, and it is cheaper to stay there.

But I have no idea how you can count for it.
Maybe the better is to take the Peugeot number less the personal costs?

La répartie est dans l'escalier. Elle revient de suite.

by lacordaire on Wed Apr 19th, 2006 at 01:07:27 PM EST
[ Parent ]
Your estimate for salaries of British workers seems rather small. Are you sure this is correct? Typically, automotive plants pay very good salaries. But even if we were to assume the salary is about 25,000 pounds per year, this is actually a case in point for something else:

  1. Assuming the cars are made in Slovakia, this should save on logistics costs due to Slovakia's geographic location.

  2. Usually, automotive plants don't move by themselves. There is a network of supporting companies such as stamping plants, plastics, paint, etc. A lot of times, they set up shop nearby to provide JIT delivery. This means the cost of making the vehicle shuold decrease even further, since these companies will most likely want to utilize cheaper Slovakian labor as well.

The big question is, are we actually going to see the Peugeot 206 sold to the consumer for a cheaper price now that the cost of making it decreases? Probably not in our lifetime.

Mikhail from SF
by Tsarrio (dj_tsar@yahoo.com) on Wed Apr 19th, 2006 at 02:15:07 PM EST
[ Parent ]
I don't udnerstand your question.
Peugeot has recently opened modern factories in Slovakia and (IIRC) the Czech Republic.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 19th, 2006 at 04:45:51 AM EST
[ Parent ]
Well to put in plainly, I was wondering whether the experience and machinery existing in the UK could be used to produce better Ladas (as a balancing out exchange ... ie the Peugeot goes to Slovakia, the Ladas go to the UK).

But I was just waking up.

by Alex in Toulouse on Wed Apr 19th, 2006 at 05:01:23 AM EST
[ Parent ]
The Lada is a Russian car, and the Czech car is the Skoda, which was bought by VW and actually has quite a bit of market penetration in the west, including the UK.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 05:03:41 AM EST
[ Parent ]
I couldn't remember the name Skoda and thought that Lada would be recognizable by all, my bad.
by Alex in Toulouse on Wed Apr 19th, 2006 at 05:07:12 AM EST
[ Parent ]
I do find the idea of building Trabants in Britain strangely appealing.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Wed Apr 19th, 2006 at 05:15:32 AM EST
[ Parent ]
Tony in a Trabant! Yeah!
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 19th, 2006 at 05:38:00 AM EST
[ Parent ]
...Renault's Dacia Logan...


(pic from wikipedia of course)

Although it didn't do so well in the "Elchtest":

by Nomad (Bjinse) on Wed Apr 19th, 2006 at 05:14:57 AM EST
[ Parent ]
I doubt Peugeot would be closing this plant if the machinery were not long since amortized (the Guardian story mentioned something about the costs of retooling for the next model), i.e. probably pretty beat and no longer state of the art.

Also, the skill levels in traditional industrial trades in Eastern Europe is comparable to the west. Just the labor is cheaper.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Wed Apr 19th, 2006 at 06:14:50 AM EST
[ Parent ]

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