France vs U.S. in a tale of two layoffs

Reuters News
Posted: Dec 04, 2013 5:32 AM
France vs U.S. in a tale of two layoffs

(This accompanies a Special Report on PSA Peugeot Citroen:

By Nicholas Vinocur and Bernie Woodall

PARIS/DETROIT (Reuters) - Five years after Jeffrey Hand took a $100,000 buyout to leave Ford Motors, the U.S. auto industry has surged back to profit and is once again hiring. Hand, who has spent the years living on his payout, has now applied to work at an auto parts supplier a few hours away from his old factory near Dearborn, Michigan.

Across the Atlantic, father-of-three Hassan Chnaiti took a buyout from French carmaker Peugeot earlier this year, as it prepared to close his plant near Paris. But having pocketed his severance pay, he will soon start work as a public bus driver, thanks to a job placement scheme funded by his former employer.

"Peugeot gave me a chance," said Chnaiti, a 34-year-old immigrant from Morocco with French nationality, who had worked his way up to the rank of supervisor. "But I don't see much of a future in this business for me."

Though separated by 6,000 km (3,700 miles), Hand and Chnaiti have much in common. Both spent more than a decade building cars and were squeezed as their respective firms, saddled with high labor costs in ever more competitive markets, fought to regain an edge. Both their employers resisted a bailout from the state. And both men accepted buyouts to leave a company they referred to as their "family."

But the differences between their stories - some of them unexpected - highlight fundamental contrasts between running a business in the United States and France. Hand, a talkative midwesterner, received almost double the lump sum that Chnaiti collected in Paris; indeed, the average severance paid by Ford in 2008 for its departing staff was markedly higher than the sum Peugeot has budgeted per worker this past year, a Reuters analysis has found.

Despite, or perhaps because of this, Ford in the United States had a much easier time laying people off than Peugeot. Ford announced its major restructuring in 2006. Two years on, it had closed eight plants and laid off nearly 40,000 workers. Over the 17 months since Peugeot began its restructuring in July 2012, the French firm is set to close just one plant and is struggling to reduce headcount by just over 11,000, though it says more cuts may be necessary. That makes it harder for the firm to reinvent itself.

One key difference has been in the companies' dealings with trade unions. Ford, where manufacturing personnel are represented by the United Auto Workers union, positioned itself for a rebound. The union agreed to a two-tier pay system which has since allowed Ford to pay new hires a lower hourly wage, with reduced health benefits and less advantageous pensions. Ford is hiring again.

Peugeot has been hit by strikes. Public opinion, including the government, was immediately hostile to what will be the first closure of a large French car plant since 1992. Eventually, unions agreed a wage freeze for a company pledge to close no more plants for three years. That deal helps existing workers, but it leaves Peugeot saddled with unused capacity in a shrinking European market - the very problem the restructuring was meant to address.

The French firm says it is using just 61 percent of its domestic manufacturing capacity, but Ford says its North America plants are running at 135 percent, because it has added shifts to the standard working day. Some lines now operate around the clock, while others are working six days a week. In 2005, the company said it was using about 88 percent of its North American capacity.

Of course, there are many other differences between the two companies, and direct comparisons don't take into account such important factors as the size of the market, costs and standards of living, plus other benefits that are available.

But where Hand in Detroit aims to return to the auto business, Chnaiti is moving on. "I've turned the page," he says.


Hand, 47, who had worked for Ford for 14 years when he took his buyout, said that when he and thousands of colleagues received the offer, it was an easy choice. "Assembly line work is very, very boring," he said. "And you can't leave the line to take a break just when you want to. If you have to go to the bathroom, it doesn't matter. You have to wait until the next break."

He was offered a range of severance packages, including full-time university or vocational school retraining of $15,000 for tuition a year, for up to four years, and an annual stipend worth half pay. Some Ford workers went to Oxford and Harvard, but Hand took the most popular option: a cash payment.

Because he was not eligible to retire, he got $100,000 plus continuing health care for six months in return for a vow to give up post-retirement benefits other than the pension he had accrued. He was helped by the fact he has no dependants and has been living rent-free in his parents' former home. He likes to work on house improvements.

In France, Chnaiti left Peugeot with 13 years under his belt and 40,000 euros - $54,000 - including overtime, holiday pay and a statutory legal payout. On top of that, he decided to re-train as a bus driver, which Peugeot funded at an average cost of 10,000 euros. His healthcare and pension allowance are covered by France's existing state systems.

The two cases are, roughly, representative of the programs at each firm. Ford says its average cost per worker was $100,000 which does not include healthcare or pensions. Peugeot declined to provide an average per worker, but a spokeswoman said total restructuring costs were due to reach 600 million euros by the end of 2013. That sum divided by the 11,200 workers who are due to go is 53,571 euros, or about $72,000 each.

The Peugeot spokeswoman said the budgeted 600 million euros includes other costs linked to the shutdown. That implies Peugeot's actual severance cost per worker is probably lower.


The most crucial difference lies not in the workers' experience, but in the companies'.

Ford's layoffs over two years affected nearly one in two of its factory workers across the United States. Peugeot's overhaul is much smaller: Cuts it has announced so far show the company wants to reduce its French headcount by about 17 percent, or about 2 percent of all those employed in the auto industry in France.

Even though Ford's cuts were much bigger, and painful for all involved, there were no strikes.

Marty Mulloy, vice president for labor relations at Ford, said it was helped by the fact the UAW understood its perilous financial situation in 2006: Without a sweeping reorganization, unveiled that year under the name "Way Forward," the company would have gone bankrupt.

The UAW talked with Ford throughout the restructuring process. "They were very cooperative in what we had to do at the end of the day," Mulloy said of the UAW.

The union did not respond to requests for comment.

Ford promised that no one would be forced out, though some workers did have to move homes for work. It also used the talks to press the UAW into accepting plans for a new wage scale. This helped the firm hire new people for nearly half the rate they had been paying veteran line workers. "It takes about a year for the company to recoup the expense of a buyout," Mulloy said.


Like Ford, Peugeot pledged no worker would be forced out. But after its plans were announced, Chnaiti described the atmosphere at his Aulnay-sous-Bois plant as explosive. The leaders of the CGT and FO unions vowed to fight "to the end" to force Peugeot to keep the plant running. French Industry Minister Arnaud Montebourg criticized Peugeot's plans in parliament, although he said later job cuts were inevitable.

After a series of protests gathering all unions, hard-line leaders staged an occupation of a factory facility in early 2013 that lasted five months.

At the heart of the dispute was the strikers' contention that Peugeot did not really need to close the factory. Philippe Julien, a leader of the CGT union at the plant, argued that the company still had plenty of money to keep operating it. It was management and not workers who should pay for strategic errors, he said.

"If the Peugeot brothers (key shareholders) had been less obsessed with spending on dividends, they would have made better decisions," Julien said. "As it stands, they are the ones who should lose their jobs, not the workers."

The Peugeot family declined to comment, but the company said it had no choice: The firm was burning 200 million euros a month. Peugeot sources at Aulnay argued that workers were merely seeking to raise the stakes for when it came to negotiate their severance pay. Management and the strikers even filed criminal charges against each other.

It was only when a long-serving Human Resources director, Philippe Dorge, was called in from another plant that the deadlock was broken. For the 200 or so strikers, the compensation was a one-time payment from Peugeot of 19,700 euros, on top of normal severance pay, although strikers forfeited the right to vocational training. Peugeot declined to say how much the dispute had cost.

"The strikes cost Peugeot money - but even then, it was more a question of image for the company," said Fabien Berruyer, head of a human resources consultancy specializing in the auto sector. "For a Franco-French brand like Peugeot, the perception that workers are being fired to please shareholders can actually hurt sales."


When Peugeot's strike ended in May, the company spent 10 million euros turning Aulnay into a giant job placement centre, complete with motivational posters, classrooms and interviews with potential recruiters.

"It's win-win," said Chnaiti, as he received his certification as a bus driver. "But I'm one of the lucky ones here - a lot of other people didn't get the job they wanted."

In July this year, Peugeot took steps to ease the tension. As a condition of a state guarantee for a major loan, it planned more frequent talks with unions and opened up two board seats for union members on its supervisory board - a first for Peugeot, but a measure Renault has already used to seek consensus.

The result was a deal announced in October: Unions accepted a one-year wage freeze in exchange for company promises to keep three factories open in France.

Yet with sales continuing to fall in Peugeot's main European markets, Peugeot's outgoing Chief Executive Philippe Varin is considering idling more production lines.

In Detroit, Hand's payout and savings are running low. Eight years from now, he expects between $800 and $900 in monthly pension payouts from Ford. But he says he's not counting on that much - pension plans like his, which give an idea what payments retirees can expect, are coming under increasing pressure across the United States.

(Additional reporting by Laurence Frost in Paris; Edited by Sara Ledwith)