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Hitt og þetta 19. apríl 2006

DJ THE SKEPTIC: Peugeot Finally Buries Rootes

LONDON (Dow Jones)--It's too bad Peugeot's decision to close the Ryton-on-Dunsmore plant and turn its back on U.K. manufacturing wasn't accompanied by a big closure program at the carmaker's poor-performing French plants, or at the very least an announcement of extensive French job cuts.

That, at least, would have pleased investors - so someone could have gone away happy after the appalling job Peugeot management made of the Ryton announcement.

Yes, more western European car plants have to go as globalization takes further hold. But for this factory the reasoning given is pretty pathetic, and the 2,500-strong workforce is entitled to feel let down.

Instead it is Peugeot management that has failed. Blaming the high cost of keeping the plant open - and asserting that even if EUR250 million were invested to bring the plant up to platform status it would still be the most costly plant in the group - is quite ridiculous.

Sure, more modern production plants that PSA now has in Eastern Europe are bound to be cheaper to operate. But compared to those in France Ryton's is a dream of a plant - and if right now Ryton is more costly it's because of the lack of model investment by Peugeot.

Producing just one basic model that began life in 1998 and is clearly well past its sell-by date means Ryton could hardly be cost-effective.

By surprising workers, suppliers and the U.K. government alike that the plant will close next year Peugeot has lost a lot of credibility. Investors and U.K. car buyers alike should take note. PSA says it would have been better to end production in July, but decided to keep the plant open on a one-shift basis until next year to provide time for the workforce to find other jobs.

What rubbish. Ryton workers don't need Peugeot's charity. The real reason is that closing the plant now would expose Peugeot to huge contractual costs and obligations, plus higher severance payouts. Clearly Peugeot hopes many workers will leave of their own choice over the next year, as they find what jobs are available in the Coventry area.

Closing Ryton wasn't inevitable, it was just the easy way out. Built by the U.K. government in 1940 as a shadow munitions factory, the Rootes Group car plant emerged in 1945. Compared to other factories in Coventry, Birmingham and Oxford, it was a gem, designed from the start to eventually produce cars.

Rootes was absorbed in 1967 by Chrysler, which already owned Simca in France, though sadly the U.S. carmaker never managed to make a success from either acquisition. The remnants, including the infamous Rootes plant at Linwood, Scotland which was built in 1962, were taken over by Peugeot in 1978.

Peugeot closed Linwood in 1981 but at least handled it well. Now, 25 years on and for the very same lack of model investment it is doing the same at Ryton, which joins a long list of regional car plants now closed, such as Standard Triumph at Canley and Jaguar at Browns Lane.

There's no use hoping for any reprieve. Trade Unions, local politicians and even the Department of Trade can lobby all they like, but the French made up their minds years ago that Ryton would go. From a business perspective it was always vulnerable, since it was in Britain and not France - that meant it was the only plant in the PSA group's western European operations that could be easily closed without breaking some kind of local law.

High-cost French plants and jobs will thus remain safe - and Ryton workers can only hope that the sting in the tail will be that investors see these more clearly as a millstone around the neck of a car company where profits are in steady decline.