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Last Updated: Wednesday, 19 April 2006, 11:47 GMT 12:47 UK
No surprise as Peugeot pulls out of UK
By Jorn Madslien
BBC News business reporter

Peugeot 206
Peugeot says it could no longer justify producing the 206 in the UK
The decision to close Peugeot's factory in Ryton next year has dealt yet another blow to Britain's car industry.

But the resulting job losses - including 2,300 Peugeot workers and up to three times that in the West Midlands's supply industry - had been widely expected.

"In a way, it is surprising it has lasted so long," observes Jay Nagley, automotive analyst with the Spyder Automotive consultancy.

"There was no justification for the UK factory."

Two months ago, the UK government was involved in talks aimed at securing the plant's future, though it seems few, if any, expected the world's sixth-largest automotive group, PSA Peugeot Citroen, to go on making cars at the Ryton plant once the Peugeot 206 model reached the end of its life.

Cost comparison between Germany and eastern Europe automotive component industry:
Western Germany: 25.8 euros per hour (2005)
Eastern Germany: 16.5
Poland: 5.4
Hungary: 4.7
Czech Republic: 4.2
Slovak Republic: 3.3
Source: Center for Automotive Research (Germany)

Peugeot blamed "high production and logistical costs" for its decision.

Nevertheless, although its successor, the 207, was unveiled at the Geneva motor show in February and is due to hit the road this spring, the 206 model will not be ditched just yet.

The popular 206 has already clocked up sales of more than five million vehicles since it was unveiled seven years ago. Peugeot is expected to cut the price of the model sharply and market it as a cheap car for Eastern European drivers.

Some had hoped that this would have enabled the French car maker to keep up production in the Midlands until 2008 or 2009.

Heading east

Peugeot's decision came soon after the car maker reported a sharp fall in profits, along with a warning that earnings would remain weak during the first six months of 2006.

PSA Peugeot Citroen's Ryton plant
The Ryton plant will close as Peugeot shifts production east

Last year, PSA's operating income fell to below 2bn euros (1.4bn) from 2.5bn a year earlier. Net profits fell to 1bn euros from 1.65bn euros in 2004.

Hence, the company's desire to cut costs might have pushed forward the closure of the Ryton factory, though strained industrial relations may also have played a part, observers say.

Last year, 60% of the Peugeot workers rejected plans for a fifth weekday shift on Fridays.

Unions have condemned Peugeot's decision to shut up shop, with Amicus general secretary Derek Simpson insisting that lay-offs on this scale would be "inconceivable" in France where workers enjoy stronger labour laws.

The harsh reality, however, is that even Peugeot's French workers face an uncertain future.

The way the 206 model is set to live on in Eastern European factories is in line with the car maker's strategy to shift production to countries where labour costs are lower than in Britain and elsewhere in Western Europe, Mr Nagley observes.

The 207 model will be produced in Slovakia, for example.

Healthy industry

Britain's car industry has suffered a string of setbacks in recent months, most notably the collapse of MG Rover last spring when up to 10,000 people at the company and its suppliers lost their jobs.

In addition, the Ford Motor subsidiary Jaguar closed its Browns Lane factory in 2004, with the loss of 1,100 jobs.

"When the Jaguar factory closed, everyone thought 'what's next'," says Mr Nagley.

But with Peugeot's pull-out, "we're down to generally efficient car factories" he says, and as such there are no reasons to fear further major closures.

Selected countries, ordered according to 2005 figures
2003 2004 2005 Change 2004/ 05
Germany 5,506,629 5,569,954 5,757,710 3.40%
France 3,620,053 3,665,990 3,549,003 -3.20%
Spain 3,029,826 3,011,776 2,752,500 -8.60%
UK 1,846,429 1,851,589 1,803,049 -2.60%
Italy 1,321,631 1,142,105 1,038,352 -9.10%
Czech Rep. 441,717 448,106 604,930 35.00%
Poland n/a 522,900 540,200 3.30%
Slovak Rep. 281,165 223,542 218,173 -2.40%
Netherlands 192,634 247,503 180,568 -27.00%
Hungary 126,296 122,661 138,918 13.30%
Finland 19,658 10,510 21,644 105.90%
Source: European Automobile Manufacturers' Association

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