Exposed Shenlong Automobile will close Wuhan No. 1 Plant and sell No. 2 Plant to lay off 4,000 employees

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 Exposed Shenlong Automobile will close Wuhan No. 1 Plant and sell No. 2 Plant to lay off 4,000 employees


According to the documents, Carlos Tavares, Peugeot Citroens global president, and Zhu Yanfeng, the chairman of Dongfeng Automobile, reached an agreement last month to close a factory in Wuhan and sell one, cutting the total number of employees by half to 4,000.

Peugeot Citroen and Dongfeng declined to comment on details of the restructuring plan. A spokesman for Peugeot Citroen Group just said, We are working with our partners to improve the overall performance of our business in China.

Two Peugeot Citroen sources said the restructuring agreement could avoid Peugeot Citroen facing the risk of withdrawing from the Shenlong vehicle. The two sources said Tang Weishi had hinted that Peugeot Citroen might withdraw from its 27-year partnership with Dongfeng or even leave China altogether.

A person close to Peugeot Citroens board of directors said: We are only one step away from having to leave China. Its really that serious.

PSA is trying to revive its business in China under adverse conditions. As the worlds largest automobile market, China has been a cash cow for the entire automotive industry, but last year it experienced its first contraction since the 1990s. Sales are expected to continue to decline this year, possibly for the second consecutive year. Many Western automakers had struggled before the economic downturn.

Peugeot Citroens deep problems in the Chinese market can even be traced back to an earlier period. With the help of Dongfeng, Peugeot and Citroen are the first foreign brands to enter the Chinese market. They also have a glorious history in China. At the beginning of the new century, with the rapid development of Chinas automobile market, the sales of Shenlong automobile are also increasing. Sales in 2014 reached 704,000 vehicles, achieving 28% year-on-year growth, peaking in 2015 and achieving 704,800 vehicles.

However, due to the failure to adapt to market changes in a timely manner, Shenlong models are out of date and lack of SVU models, resulting in stall in sales and even a cliff-like decline. From 2016 to 2018, sales of Shenlong automobiles declined sharply for three consecutive years, falling to 253,400 vehicles, about 36% of the peak, and its market share lagged far behind that of German and Japanese joint ventures.

Peugeot Citroens semi-annual financial report as of June 30 shows that in China and Southeast Asia, the sales of 64,169 units in January-June fell by 60.62% compared with 162,946 units in the same period last year. Among them, the logo brand declined 63.69%, to 33,068, Citroen brand declined 58%, to 29,123, DS brand declined 14.25%, sales volume was 1,757. Sales in China fell 62.1%. Shenlong Automobile and Shenlong Automobile Sales Company suffer losses in terms of sustained operating income, operating income, depreciation and impairment, net financial income, etc.

A spokesman for Peugeot Citroen said it would not abandon the Chinese market and was still implementing an action plan to cut fixed costs.

According to the plan, Shenlong Automobile will now close its original assembly plant, Wuhan No. 1, and cooperate commercially with the local government to rebuild the plant. The equipment and production of No. 1 plant will be transferred to No. 3 plant in Wuhan.

The companys internal documents show that Shenlong Factory is still selling the idle No. 2 factory in Wuhan. By the end of 2019, the total number of employees of Shenlong Automobile will be reduced from 8,000 to 5,500, and to 4,000 in three years. The document also points out that the Shenlong plant is negotiating with potential unidentified buyers.

Shenlong Automobile Wuhan No. 2 Factory has a capacity of 150,000 vehicles, mainly responsible for the production of C5, C6, 508 and other high-end models. At the same time, it is also PSA Groups new generation of lean model factory in the world.

Last year, Dongfeng Chairman Zhu Yanfeng tried to persuade two other partners, Honda and Nissan, to take over an assembly plant in Peugeot Citroen in China, Reuters quoted unnamed people familiar with the matter as saying.

Philippederovira, Peugeot Citroens global chief financial officer, also said at a semiannual earnings meeting that the company was trying to change its business model in China, one of its options being probably to lease factories to other car manufacturers to solve its capacity problems.

According to relevant data, the production capacity of Shenlong Automobile Factory 1 is 300,000, that of Shenlong II is 150,000, that of Shenlong III is 300,000 in two phases, and that of Shenlong IV is 240,000 in one phase, with a total capacity of 990,000 and a capacity utilization rate of 26%.

In the first half of this year, the total sales of Shenlong vehicles with two brands of Dongfeng Peugeot and Dongfeng Citroen were only 63,000, down 60% from the previous year, and only about 30% of the annual sales target of 235,000 vehicles were achieved. Shenlongs management apparently did not see any sign that sales were about to pick up. From 2015 to 2018, the distribution network of Peugeot and Citroen brands in China has shrunk by nearly 80%, currently only 666, compared with 1186 of the other two joint ventures in Dongfeng.

As Peugeot and Citroens product lines will be streamlined around more profitable models, less-performing models will be eliminated and there will be no need for too many factories to produce them. It also reflects Peugeot Citroens Turnaround Strategy in Europe.

Peugeot Citroens performance in the first half of the year was remarkable, with its recurrent operating profit of 3.338 billion euros, an increase of 10.6%. Among them, the recurrent operating profit of the automotive sector increased by 12.6% to 2.657 billion euros. The recurrent operating profit rate of the automobile sector reached 8.7%, compared with 7.8% in the same period last year. But Peugeot Citroen still relies heavily on the European market, with sales in Europe of 1,678,126 units from January to June this year, up 0.27% year-on-year, accounting for 88.16% of global sales.

Peugeot Citroen and Dongfengs cooperative deals are often worrying, with PSA executives including Tang Weizhen expressing disappointment with the management of Shenlong. On August 7, a source said that Dongfeng Automobile was evaluating and negotiating with potential buyers in recent weeks to sell part or all of its PSA shares, including selling the shares directly or issuing PSA-backed exchangeable bonds.

Tang Weishi answered a question about investing in China business at Peugeot Citroens performance Conference on July 24, promising to accelerate variable cost reduction, reduce fixed costs and increase pricing.

(function () {(window. slotbydup = window. slotbydup | []). push ({id:6374560, container:ssp_6374560, size:300,250, display:inlay-fix, async: true});} (); Peugeot Citroen said it focused on the break-even point of the Chinese market in 2019, reduced fixed costs, and promoted Peugeot 4008PHEV, 508PHEV and other electric power. Chemicals are on the market. Our partner (Dongfeng Motor) has the same idea, Tang Weishi said. They also want to accelerate business development. However, Peugeot Citroen faces many obstacles in restructuring its business in China, especially in the face of increasing uncertainties such as market downturn, economic downturn and trade frictions. Selling the second factory in Wuhan also poses challenges, although the Chinese government may offer help. This article originates from the client of China Youth Daily. For more exciting information, please download the Client of China Youth Daily (http://app.cyol.com). Source of this article: Zhongqing Online Responsible Editor: Wang Xiaoyi_NE0011

Peugeot Citroen Group said it would focus on the break-even point of the Chinese market in 2019, reduce fixed costs and promote the listing of Peugeot 4008PHEV, 508PHEV and other electric vehicles.

Our partner (Dongfeng Motor) has the same idea, Tang Weishi said. They also want to accelerate business development.

However, Peugeot Citroen faces many obstacles in restructuring its business in China, especially in the face of increasing uncertainties such as market downturn, economic downturn and trade frictions. Selling the second factory in Wuhan also poses challenges, although the Chinese government may offer help.

This article originates from the client of China Youth Daily. For more exciting information, please download the Client of China Youth Daily (http://app.cyol.com)