PSA Renegotiates Contracts with Suppliers to Cut Down Costs

If last years' prices for aluminum, copper, oil, palladium, steel and other raw materials have gone crazy and represented an obstruction in PSA's plan to cut down costs, the new year shows a completely different side of the story.

According to Automotive News Europe, PSA/Peugeot-Citroen plans to compensate the high costs paid for raw materials as their prices will be reduced in 2009. The French car maker is going to renegotiate the contracts with its 800 suppliers.

"Prices are nowhere near where they were back in April, so we want to recover as quickly as possible what we lost last year, " PSA Vice President of Purchasing Jean-Christophe Quemard explained.

Having this in mind, PSA wants to take advantage of the turnaround in raw materials costs in 2009.

The automaker claims its raw material costs have risen by more than €1.5 billion since 2004. Quemard is not extremely optimistic about getting all that back, but the renegotiations are likely to help the car maker "level out the bump" from last year's losses.

Furthermore, PSA is also advising its component suppliers to renegotiate contracts with their raw material suppliers.

"It is in suppliers' interest to go out and look for raw material reductions in their own contracts," Quemard added.

As the matter of fact, the cost-cutting objective of the CEO Christian Streiff's Cap 2010 restructuring plan couldn't be reached because of the raw materials' high costs.

In spite of this obstruction, PSA managed to cut costs by more than €2 billion over the last 18 months. Most of these savings were possible because of lower warranty costs, reductions in general and administrative expenses. Moreover, costs have been cut down also because the automaker negotiated new contracts for travel, advertising, mobile phones and telecommunications.

And now, since the pain in the back seemed to have been removed, Quemard is pretty sure this kind of savings will be the rule and not the exception this year.
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