Dongfeng Peugeot Citroen Automobiles
A visitor sits inside a Peugeot car during the Prague Autoshow in Prague (Photo: Reuters / David W Cerny)

As China's overall car sales continue to decrease, major automotive manufacturers have now taken steps to cut down their production capacity.

PSA Peugeot Citroen has announced that it has made a decision along with its Chinese partner Dongfeng Group to substantially cut its production capacity in China. The companies revealed that they will be cutting their workforce in half, which will include the shutting down of two manufacturing plants in the country.

The French carmaker announced the cutbacks following a continued drop in sales within the world's largest automotive market. The company's sales in the country have apparently dropped once again for the 13th consecutive month.

The layoffs will be made on the company's Chinese joint venture company, Dongfeng Peugeot Citroen Automobiles (DPCA).

According to the announcement, staff members for DPCA will be cut to only 4,000 people by 2022. The company will also be shutting down and selling two of its four factories in the country. The move is a dramatic change within the industry, given the substantial amount of growth the joint venture has had in China in the past three decades.

Peugeot-Citroen was one of the first foreign firms to have heavily invested in China during its automotive boom, transforming a country of bicycle users into the largest automotive market in the world.

The company's joint venture with Dongfeng Group was established back in 1992. The company experienced significant success in the budding new market, mostly bolstered by sales of its 4008 and 5008 sports utility vehicles (SUVs).

However, due to stiff competition both domestic and abroad and a clear overcapacity, most automakers are now experiencing substantial losses. Automotive manufacturers in the country are estimated to have a capacity to roll out more than 64 million cars each year, more than double that of the number of vehicles sold in 2018.

According to analysts, Peugeot Citroen's move will not be an isolated case as other car manufacturers will undoubtedly follow suit and cut their capacities in the coming years.

One of the biggest issues that are plaguing China's automotive industry is overcapacity, and companies are now only responding to the underlying issue. As sales continue to decline, the issue of overcapacity will become more apparent and companies will have no choice but to cut down jobs and close down plants.

Since 2016, DPCA has been experiencing a drop in sales for three straight years. Last year, the company was only able to achieve sales just one-third of its 2014 peak, where it sold more than 731,000 vehicles in China.