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Report: Peugeot, Dongfeng to shed 2 plants in China, halve workforce to 4,000

Peugeot SA parent Groupe PSA and its Chinese partner Dongfeng Motor Group Co. Ltd. have agreed to cut two of their four shared assembly plants in China, impacting thousands of jobs, Reuters reported Aug. 10, citing a company document.

Dongfeng Peugeot Citroen Automobile Co. Ltd., the two companies' Chinese joint venture, will close its original assembly plant, Wuhan 1, and sell its Wuhan 2 plant under plans agreed between PSA Chairman and CEO Carlos Tavares and Dongfeng Chairman Yanfeng Zhu in July, the report said.

Reuters noted that Wuhan 1's tooling and production operations will be transferred to the Wuhan 3 facility, adding that underperforming vehicles will be dropped.

The plan will result in the reduction in the JV's workforce to 4,000 from 8,000 over three years, Reuters said. By the end of 2019, the JV will reduce its headcount to just 5,500.

Dongfeng and PSA did not immediately respond to S&P Global Market Intelligence's requests for comment. But a PSA spokesperson reportedly told Reuters that the company is "working with our partners to improve the overall performance of our business in China in all its dimensions."

Two sources told Reuters that PSA's chief executive had hinted that the group potentially may exit from its partnership of 27 years with Dongfeng or completely leave China.

"We're just a whisker away from having to withdraw from China," one person close to the PSA board reportedly told the news outlet.

Dongfeng, which owns a 12.2% stake worth approximately $2.5 billion in the French carmaker, was earlier reported to be considering options for its stake in the company. Bloomberg News reported Aug. 7 that the options included a potential sale.

In July, the French automaker said it expects new car sales in China to decline 7% for full year 2019, despite EPS climbing 23% year over year during the first half. In Peugeot's call to discuss half-year earnings, CEO Carlos Tavares said the company will intensify cost-cutting efforts to offset the impact of lower-margin electric vehicles.