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Peugeot Citroen unveils plan to cut costs, boost profitability

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PARIS (AP-CP) _ French auto company PSA Peugeot-Citroen plans to cut costs _ and up to 8,000 jobs in Europe _ and focus on selling cars in emerging markets in an effort to improve profitability.

The job cuts, disclosed Tuesday, would represent nearly 12 per cent of its European work force.

Europe's second-largest carmaker has suffered four years of sliding profitability, because sales failed to meet expectations earlier in the decade and chronic overcapacity.

The plan drawn up by chief executive Christian Streiff sets a target for boosting its operating margin to between 5.5 per cent and six per cent by 2010, compared with 2.7 per cent in the first half of this year.

Profitability is slated to continue improving, reaching between six per cent and seven per cent between 2010 and 2015.

Streiff said the cost-cutting plan would include a hiring freeze in Europe, where labour costs are highest. That would cut the European work force by up to 8,000 jobs, mainly through early retirement and voluntary departures.

Peugeot-Citroen employes about 211,000 people worldwide, including 68,000 in Europe.

It also intends to cut in half the cost of guarantee claims, improve the productivity of its purchasing, reduce fixed costs and development costs, cut logistics costs, and improve capacity utilization.

The cuts reflect restructuring among most of the world's carmakers as they deal with global overcapacity, loss of market share to Japanese companies and changes in market demand caused by rising gasoline prices. In North America, the Big Three carmakers _ General Motors, Ford and Chrysler _ have cut thousands of jobs in the United States and Canada, including 1,200 announced just last week at at a GM truck plant in Oshawa, Ont., just east of Toronto.

In Canada, Ontario has been hit hard by the loss of Big Three auto industry jobs, although Japanese carmakers Toyota and Honda have expanded their assembly factories in the province to supply growing U.S. demand for their vehicles.

While Peugeot-Citroen has previoulsy said it didn't believe in producing low-cost cars specifically aimed at emerging markets, Streiff indicated Tuesday that this may be changing. The company is working on ``entry level'' models targeted at China, Russia and South America, he said.

The company is targeting sales of four million vehicles a year by 2010, compared to 3.37 million in 2006, fueled by a major effort to rejuvenate its model lineup.

The company is looking to boost sales outside the mature European market. It plans to double its sales in Latin America to 400,000 a year. It is targeting one million annual sales in China by 2015 and plans to build a new plant there with its local partner Dongfeng Motor in 2010.

A joint venture with another local partner, Hafei, is under way and should lead to the construction of a third manufacturing facility in southern China, the company said.

In Russia, Peugeot-Citroen is targeting sales of 100,000 by 2010. In western Europe, where Peugeot-Citroen sells the bulk of its cars, the company plans to sell 300,000 more cars annually by 2010.

It plans to launch vehicles powered by hybrid diesel engines in 2010 and equip all products with Stop & Start systems that reduce emissions and fuel consumption by stopping a car's engine when it is not moving.

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Peugeot Citroen unveils plan to cut costs, boost profitability
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