U.K. Unions Plan Protests as PSA Rejects Bid to Keep Ryton Plant Open

French automaker PSA Peugeot-Citroën yesterday rejected a bid submitted by U.K. labour unions designed to save the company's Ryton plant from closure. According to the Financial Times (FT), PSA management told senior officials from the Transport and General Workers’ Union (TGWU) and Amicus yesterday morning that their plan was too expensive and that the closure of the factory would go ahead as planned.

The unions had reportedly sought to convince PSA to reverse its decision, drawing up a plan that included a move to single-shift working, as well as a voluntary redundancy programme, in exchange for the allocation of a new model to the plant rather than PSA's Slovakian facility. The proposal was, however, rejected by PSA, which says that it will make more money per unit by producing elsewhere. In response, the workers at the U.K. facility are threatening to hamper remaining operations by going on strike, with a ballot reportedly under way at Ryton today.

The rejection of the plan has also provoked warnings of a boycott of the French brand in the United Kingdom. Similar to planned protests by General Motors’ (GM) U.K. workers, labour unions representing PSA’s workers are planning to wage a campaign against Peugeot in an attempt to dent the company's sales by up to 80,000 units per annum (upa). Given that Peugeot sells around 160,000 upa in the U.K. market, this is a rather significant threat, albeit a very difficult one to carry out in practice.

In truth, the threat of a boycott is unlikely to have any impact on Peugeot's decision. Speaking to the British Broadcasting Corporation (BBC), TGWU convenor Jim O'Boyle said that PSA’s management had made it clear that the plant would close, and that even if staff at Ryton went on strike for a day, a week or even a month, it would not make much difference. The only way for unions to have an impact, O'Boyle said, would be to get PSA workers across Europe to commit to a 'European day of action'.

The European committee of PSA Peugeot-Citroën – made up of representatives from the six main unions in France and other European divisions with over 500 employees - did indeed earlier this week urge the company's management to explore all possible alternatives to closure of the Ryton plant, while reiterating its support for the 2,300 employees affected by the decision. As of yet, however, the committee has not commented on any possible planned action against the decision.

Outlook and Implications

PSA has admitted that Ryton could build a new model profitably. The problem is, the company says, that its other plants in Europe can do the same job more profitably. According to the FT, it would cost over 800 euro (US$1,022) more per car to manufacture at Ryton than in Slovakia. Upon announcing the Ryton plant’s closure, PSA said that the 206 models currently made at Ryton cost 415 euro more per unit than those built by the company's French plants. Given the generally tight margins in the automotive industry, it is ultimately the bottom line that matters, and - to the misfortune of the country’s battered industry - PSA has joined GM in identifying the United Kingdom as the costliest manufacturing location in Europe.

The reasons why many manufacturers are targetting U.K. facilities for cuts rather than their continental European plants are complex. Manufacturing labour unions have cited the United Kingdom's flexible labour laws as a major culprit, but the reasons are not so simple. As David Coats, associate director at The Work Foundation, put it, 'Few businesses take decisions of this magnitude primarily on the basis of labour law alone - ease of hire and fire is but one aspect in the mix. There are many other issues that are more significant - skill levels, likely returns on investment, access to markets, patterns of demand and transport infrastructure.’ In the latest Society of Automotive Manufacturers and Traders (SMMT) annual review, over three-quarters of the executives surveyed said that the transport infrastructure in the United Kingdom makes it increasingly difficult for U.K. companies to remain competitive. Ironically, another issue cited by the executives is the availability of staff.

Added to this is the U.K.'s exclusion from the Eurozone, leading to potential currency risks and higher costs, while the fact that none of the manufacturers still present in the country is U.K.-based can be seen as another risk. In PSA's case, for example, the company will have found it easier to shut down a plant across the Channel rather than at home in strike-prone France. It is also the case that the French market is Peugeot's biggest in the world by far – last year the company sold nearly three times as many units there as in the United Kingdom - meaning that any boycott in its home market would have a much stronger impact on the company's bottom line than any campaign in the United Kingdom ever would.

The closure of Ryton leaves the future of U.K. car manufacturing even more dependent on the Japanese manufacturers still present in the country. The combined output of Toyota, Honda and Nissan has increased steadily in the past five years, climbing from 563,809 units in 2001 to 766,560 units in 2005; during the same period, volumes at all other manufacturers, except for BMW's Mini, declined. Whether or not the Japanese companies could boost their margins by producing elsewhere in Europe is open to debate, but for the time being the companies appear committed to U.K. manufacturing, as evidenced by the sizeable investments in their local facilities. Should PSA and GM workers manage to stage boycotts of any significant scale, this could benefit the Japanese companies, which will soon be the only mass-market volume manufacturers able to boast products 'made in the United Kingdom'. Then again, the bottom line is an important consideration for the consumer too, meaning that competitive pricing will in the longer term dictate success on the marketplace.