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PSA Plant in Spain Lands Major LCV Assembly Program

Executive Summary

The Vigo plant was awarded the K9 program in part because of union concessions, including a 2-tier wage structure, that lowered labor costs relative to a competing PSA plant in Slovakia.

MADRID – PSA Peugeot Citroen chooses its plant in Vigo in Northwest Spain to produce the successor to the current Citroen Berlingo and Peugeot Partner light-commercial vehicles.

Assembly of the new model, codenamed K9, starts in late 2017 and sales launch in 2018. The LCV could represent up to 50% of the 500,000 units forecast to be produced at the Vigo plant in 2018.

Vigo was competing with the PSA plant in Trnava, Slovakia, for the K9 program, but the Spanish plant enjoyed an important advantage over Trnava: Vigo is assembling the C4 Picasso, the first model to be built on the French automaker’s new EMP2 modular platform the K9 will use. It could be possible to assemble the K9 on the same Vigo assembly line as the C4 Picasso.

The additional work also could mean restoration of a third shift at Vigo. For that to happen it would be necessary for its satellite plant at Mangualde, Portugal, where the Berlingo and Partner ranges are assembled, to reach full production capacity. Another assembly line at Vigo will continue producing the Citroen C-Elysee and Peugeot 301.

The Vigo plant will close 2014 with production of 397,000 units, including 379,000 complete assemblies and 18,000 complete-knocked-down builds, short of the 406,000 forecast only a few weeks ago, probably due to weak demand from the rest of Europe.

But there are other reasons Vigo was awarded the K9. Months of negotiations between management and its works council resulted in important concessions by SIT, the main union at the plant, that brought labor costs more in line with Trnava’s.

The concessions focused on wages. For example, salaries will stay unchanged in 2015 and 2016 if the inflation rate remains under 1.5%. If  inflation exceeds 1.5% in those years, salaries will be increased by the inflation rate minus 1.5%, with a maximum 1.5% increase even if the inflation rate exceeds 3%.

The SIT also has accepted a new, 2-tier wage structure that ranges from €16,150-€34,250 ($19,770-$41,930) per year, about 5% below the current level.

The pay reduction reduces labor costs at Vigo to €19 ($23.26) per hour, still nearly double the €10 ($12.24) hourly wage at the Trnava plant.

Production of the new K9 in Vigo probably will be accompanied by the assembly of a clone for Opel/Vauxhall to replace the current Combo range, which competes with the Berlingo and Partner in the European LCV market. The Combo, based on the Fiat Doblo, now is assembled by Tofas in Turkey.

This new Opel/Vauxhall model would be another product of the agreements signed last year by General Motors and PSA. In 2013, the first two projects under those agreements, the C3 Picasso and Opel Meriva, were awarded to the Opel plant operates in Zaragoza, Spain.

The investment required for the new models being assembled in Vigo has not been released. But when the current Berlingo and Partner models were awarded to Vigo in 2008, PSA invested €326 million ($399 million) for new-product development and €334 million ($408 million) for R&D.

PSA also has announced a new engine family that will power smaller Citroen and Peugeot models including the Citroen C3 and DS3 and the Peugeot 208. Annual production is pegged at about 200,000 units.

The new engines likely will not be manufactured at Vigo or Trnava, as the Spanish plant has not produced engines for many years and the plant in Slovakia never has assembled them. The program more likely will be awarded to one of the two PSA operations in France, in Tremery and Douvrin. Both plants currently build engines and have been doing so for many years.

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