PSA Peugeot Citroen CEO Philippe Varin made the announcement on the back of the news that the group will report a net loss for the first half of 2012 with the automotive division expecting to report a recurring operating loss for the first-half of 2012 of around 700 million euro ($842 million) as European demand continues to fall, down eight per cent in 2012 and 23 per cent between 2007-2012.
Overcapacity within the group has seen its European plants running at 76 per cent utilisation for the first half of 2012, down from 86 per cent in 2011.
Becoming the first French car plant to close in 20 years, the Aulnay plant near Paris will cease production operations in 2014. Employing more than 3000 workers and responsible for building the Citroen C3, the plant’s production will be combined with the company's Poissy plant, also operating under capacity, where production of the Peugeot 208, Citroen C3 and Citroen DS3 all currently takes place.
"A company can't preserve jobs when it's burning 200 million euros ($241 million) a month in cash," Varin said. "Prevaricating would have put the group in great danger."
"The depth and persistence of the crisis impacting our business in Europe have now made this reorganisation project indispensable in order to align our production capacity with foreseeable market trends."
Varin said the plan was vital "to get back on track and … secure the group's future and our car production base in France," adding that operating cash flow is not expected to turn positive before 2015.
Industry journal Automotive New Europe reports that workers at Aulnay downed tools and halted production after the announcement with local CGT, France's biggest industrial union, representative Jean-Pierre Mercier saying, "Varin has declared war on us, and we'll give him war."
Another plant in Rennes will shed 1400 of its 5600 employees while a further 3600 non-assembly corporate jobs within the company will also be lost as demand for large cars like the Peugeot 508 and Citroen C5 continues to drop.
The group is offering employees assistance towards further employment solutions.
While Peugeot is an alliance partner with General Motors – the US brand bought a seven per cent stake of the French marque in March – the French government never propped up the company in the same way US leaders supported GM and Chrysler following the global financial crisis.
According to Automotive News Europe, Peugeot's global sales fell 13 per cent in the first six months of 2012 to 1.62 million light vehicles, contrasting with a 3.3 per cent fall reported by Renault and a 10 per cent increase from Volkswagen.
The reduction in employee numbers follows Peugeot's 2011 announced of 6000 job cuts across Europe.
Jaedene Hudson from Peugeot Australia told CarAdvice it's "business as usual" with no impact expected locally.