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PSA sales drop, might close plant ahead of schedule


French automaker PSA Peugeot Citroen said Wednesday that it would launch talks with workers to make the group more competitive, and warned that it might close a strike-plagued plant earlier than expected, after posting an annualised 6.5 percent drop in first quarter sales.

The overall quarterly sales figure of 13.03 billion euros ($16.9 billion) amidst a chronically weak European auto market led Peugeot to focus on strong sales in China, and to warn that repeated strikes at a historic factory in Aulnay, north of Paris, might force the group to close the plant a year ahead of schedule.

"The fact that a small number of people keep disrupting our factory might oblige us to do so," finance director Jean-Baptiste de Chatillon warned during a telephone news conference.

The group subsequently issued a statement which said that production at the plant was still expected to extend into 2014.

Jean-Pierre Mercier from the CGT trade union promptly responded that the plant's workers "do not respond to blackmail" and pledged to pursue the current strike, which was launched three months ago.

Meanwhile, shares in the group leapt by more than seven percent in morning trades on the Paris stock exchange after PSA pledged to cut costs, and confirmed a decision to slash its operational cash consumption by half this year to reach a breakeven point in its cash flow by the end of 2014.

Sales by the group's purely auto units plunged by 10.3 percent to 8.7 billion euros as key markets such as France, Spain and Italy continued to suffer from a poor economic climate.

PSA emphasised that European auto markets "could be worse than previously expected" next year as well, but said that it had begun the execution phase of an alliance with US giant General Motors, and highlighted a 31 percent jump in unit sales in China in the first three months of 2013, compared with the same period a year earlier, to give the French company a 3.9 percent share of the world's biggest auto market.

It said that "operational initiatives" to offset a potential 2014 slump were "under review," and de Chatillon said the group was "studying the launch of negotiations... on the group's competitiveness. We will discuss that with social partners starting in the second quarter."

The French term social partners most often refers to trade unions.

PSA must finalise a recovery plan dubbed Rebound 2015 that concerns more than 11,200 workers in France, and the likely sale of around 200 million euros in real-estate assets this year.

Shares in the group leapt by 7.42 percent to 5.85 euros in morning exchanges on the Paris stock exchange, while the SBF 120 index on which they are listed was 0.56 percent higher overall.

Broker Xavier de Villepion at Global Equities said: "The share's rise is also the result of purchases of uncovered short positions which automatically push up the price."

But he added that investors were encouraged by the group's cost cutting plans and estimated that "the worst should be reached in 2013 and after that the group could rebound."

Another brokerage, CMC-CIC, was less positive however, advising clients "to stay away from this stock."

It added that "the situation remains very complicated at PSA and the forecasts appear hard to reach."