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Peugeot Citroen CEO: no recovery for years

Greg Keller, AP Business Writer

The Peugeot Onyx Concept car is shown at the Paris Auto Show, France, Thursday, Sept. 27, 2012. The Paris Auto Show will open its gates to the public from Sept. 29 to Oct. 14. (AP Photo/Remy de la Mauviniere)

PARIS (AP) -- The chief executive of PSA Peugeot Citroen, France's largest carmaker, admits his company is "in the eye of the hurricane" as Europe's car makers face an expected 6th straight year of falling sales in 2013.

And things aren't expected to improve for years to come, says Philippe Varin.

In response, the two-century old company is focused on taking its brands upscale and expanding globally, all while taking the difficult steps to shutter factories and shed workers in France's famously cossetted labor market.

Varin, 60, discussed Europe's difficulties and other topics at the Paris Auto Show in the French capital.

— Europe's Distress: Sales in Europe have slumped 25 percent since 2007, and no relief is in sight, Varin said.

"We're working on the assumption that the market has hit a plateau for the coming three years, so that 2015 is not going to look very different from 2012," Varin said.

The market is currently worse than it was at the start of the year, with European sales forecast to be down 8 percent, including a 12 percent drop in France.

"What's new is that the German market is also starting to weaken," Varin said. Germany is Europe's largest and strongest economy, so a downturn there bodes ill for the wider region.

— PSA Peugeot Citroen's plan: The company is responding to Europe's woes with a series of measures aimed at taking its brands upscale and around the world.

"We're really in the eye of the hurricane," Varin said, "There are no miracle measures. We have to continue to move upscale to improve our pricing power."

It's also trying to shrink its dependence on the European car market, investing in two factories in China to boost sales in Asia. "The internationalization of the group is a critical imperative," Varin said.

Meanwhile, it's downsizing manufacturing in Europe. Peugeot announced earlier this year that it would close a major factory in France and cut 8,000 jobs — part of a plan to save €2.5 billion by 2015. An alliance with General Motors to share some procurement costs will also help save money. About €1 billion are promised for this year alone.

The plant closure makes Peugeot Citroen one of the first European car makers to address the continent's critical problem of over-supply. Some analysts say up to 40 percent of Europe's car plants are losing money and operating below capacity.

— Alliance with GM: Under the deal with GM, the American company became the French automaker's second-largest shareholder with a 7 percent stake, behind the Peugeot family, whose stake dropped from 31 percent to around 25 percent.

Peugeot says the deal will allow it to cope with tighter emissions targets in Europe and strengthen its position in emerging markets in a way not economically feasible on its own.

One of the first concrete benefits of the alliance is a planned purchasing joint venture. Varin said it's ready to go now, and is just waiting for anti-trust approval from European authorities in Brussels and elsewhere.

"The approval process in underway, by November it should be ready," Varin said.