PSA says launch wage talks with workers

French automaker PSA Peugeot Citroen said Wednesday it would launch talks with workers on wages and working hours to boost competitiveness, 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 10 percent 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," said de Chatillon.

Chief executive Philippe Varin said later at the company's annual shareholder meeting that he sees the talks with employees on wages and working hours in May.

"I would like to see them wrapped up in the autumn," said Varin.

PSA's French rival Renault reached a deal with its unions last month that will see wages frozen in 2013 and working hours increased.

France is expected to adopt legislation next month that gives companies added flexibility to lower wages and working hours to reaction to an economic slowdown.

PSA must also 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 ended the day with a gain of 10.8 percent to 6.04 euros, while the SBF 120 index on which they are listed was 1.4 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."