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CEO Varin says PSA needs to bring production capacity in line with the market (Photo: PSA)

PSA/Peugeot-Citroen said it is planning to close a plant, lay off several thousand workers and reorganize its operations to restore profitability.

The French carmaker, which said it will report a first-half operating loss in its automotive division of around 700 million euros, has been hit hard by the weakness of the European market.

More than most of its competitors, PSA is heavily dependent on Europe, where demand for new passenger cars is expected to have declined about 8 pc in the first half.

During the same period, PSA said its unit sales fell 10 pc and group production contracted 18 pc. PSA's European plants are now running at 76 pc capacity, down from 86 pc in 2011.

The carmaker has also been burning cash at a rate of 200 million euros a month since 2011.

PSA plans to:

  • cease car production at its plant in Aulnay outside Paris in 2014. The factory, which builds the Citroen C3, employs 3,000 people
  • reduce output at its plant in Rennes in northern France, which would affect 1,400 out of 5,600 jobs there
  • cut 3,600 jobs across France to to align the corporate structure with lower business volumes.
"The depth and persistence of the crisis impacting our business in Europe have now made this reorganization project indispensable in order to align our production capacity with foreseeable market trends," PSA CEO Philippe Varin said in a press release.

The moves should return the company to break-even in terms of operating cash flow by the end of 2014, PSA said.