Peugeot looks at cutting French capacity PSA Peugeot Citroën is considering closing an assembly line at one of its factories in eastern France as Europe's second-largest carmaker by sales seeks to reduce fixed costs amid weak sales on the continent. The French group is looking to cut production capacity at its Mulhouse factory if demand does not pick up next year. With two lines, the factory built 224,000 cars last year, around half its potential output. Peugeot said 250,000 cars needed to be produced at the site for the second assembly line to be economically viable, and discussions with the unions were getting under way. No decisions have been made yet, however. This comes as the company has posted the biggest sales drop in Europe this year of all carmakers, with deliveries falling by 10 per cent. This compares with a 3 per cent fall in the overall market, which is on track for the sixth straight annual decline. Peugeot is attempting to cut its severe cash burn of €3bn last year by half in 2013. Last year the carmaker announced 6,000 job cuts and the closure of its Aulnay factory, the first large French car plant to shut for 30 years. Last month the group also received the backing of the unions for a labour deal to cut overtime pay and freeze salaries. The agreement opened up the possibility of talks on closing the second line of the Mulhouse plant. Philippe Varin, chief executive of the group, is looking for partners to help it expand internationally. The company is in talks with Chinese carmaker Dongfeng with a view to a potential capital increase. A Chinese stake would be politically sensitive, so the government is weighing up taking a stake itself to maintain French control, according to people close to the discussions. Peugeot accounts for 60 per cent of France's car production and employs close to 100,000 people locally, in an industry that, directly or indirectly, accounts for about one in 10 French jobs. The forthcoming review of plant capacity at Peugeot will also look at the factory in Poissy, near Paris. This plant produces about 270,000 cars a year so a closure of a second line here is less likely. The company is aiming to have a 100 per cent utilisation rate of its factories in a bid to reduce cash burn, up from 73 per cent this year. With the closing of the Aulnay factory, the capacity utilisation rate will move up to 80 per cent. As part of the union agreement last month the company said it would cut overtime pay by 20 to 25 per cent and freeze salaries next year. But it agreed not to shut any additional French plants for three years and to boost capacity. The last two months" figures have indicated that the wider European car market may be stabilising. Sales rose 5.4 per cent in September and 4.7 per cent in October, following sharp declines earlier in the year, according to data from the ACEA industry group.