Lose All Jobs or Some Jobs?

No one is buying Peugot's cars. Solution, stop building so many cars. Problem. If you don't need so many cars, you don't need so many workers. Problem: In France, you're not allowed to lay off auto workers. Companies have a duty to keep them working, even if the company is drowning in debt and will eventually have no choice to go belly up because it can't lay off workers... (Much like union car folks in the US... even though they may be laid off..they get their full salary.)

Union representatives from a PSA Peugeot Citroen (UG) factory hoped last month to meet with President Nicolas Sarkozy’s campaign in the run-up to the first round of elections. Then Sarkozy himself appeared.
“That was a surprise,” said Tania Sussest, a representative for SIA, the biggest union at the factory about 20 kilometers northeast of Paris. “We thought we would talk with the spokeswoman.”

The plant in Aulnay, which makes the 12,800-euro Citroen C3 compact, seen here, and employs about 3,300 workers, may be a test case for the ability of French carmakers to overcome political opposition to restructure.

The meetings show how intertwined French politics is with the country’s auto industry, which directly employs about 233,500 people, according to the French statistics office.
.The French president, who faces a close runoff against Socialist challenger Francois Hollande on May 6, listened carefully for about 45 minutes and then pledged to meet Peugeot Chief Executive Officer Philippe Varin to support the union’s call to secure jobs. He fulfilled that promise two days later, summoning the CEO to the Elysee Palace, Sarkozy’s official residence.
French government interference, which helped Peugeot and Renault SA (RNO) get through the financial crisis in 2009, now risks pushing the two companies further behind Volkswagen AG (VOW) as job- security pledges prevent them from shedding overcapacity. The German carmaker generated more than double the combined revenues of Peugeot and Renault in the first quarter. Peugeot stock is the only decliner among European automakers this year.

Both Sarkozy and Hollande are keen to ensure that jobs remain in France, with the nation’s jobless rate stuck at a 12- year high. The industry directly employs about 233,500 people, according to the French statistics office. Indirectly, about 9 percent of France’s workforce is linked to autos, according to the country’s carmakers’ association.

Shrinking Share
“There’s no big difference between the two candidates on this issue,” said Carlos da Silva, an analyst at IHS Automotive. “A lot has already been done during the financial crisis to support the automobile sector. Now, given the general outlook in Europe, today’s urgencies are: shore up public finances, shore up public finances, shore up public finances.”
That mantra isn’t helping to sell cars. Paris-based Peugeot’s market share in the first quarter fell to 11.9 percent from 13.3 percent, while Renault’s dropped to 8.2 percent from 9.9 percent, according to data from the European Automobile Manufacturers’ Association.
Peugeot shares have dropped 14 percent this year, compared with a 24 percent gain for VW. Renault shares have gained 28 percent, with the company’s exposure to Europe lessened by its alliance with Nissan Motor Co.

Test Case
The Peugeot plant in Aulnay, which makes the 12,800-euro ($16,965) Citroen C3 compact and employs about 3,300 workers, may be a test case for the ability of French carmakers to overcome political opposition to restructure. Varin said last year that the factory has a “competitiveness problem,” calling into question its future beyond 2014.
Hollande isn’t allowing Sarkozy to appear to be the sole protector of French jobs, which is a major political issue with 2.9 million people out of work. The Socialist candidate moved to thwart efforts to cut jobs after the election.

“I won’t allow a parade of firings that have been postponed,” he said on France 2 television on April 25. “There needs to be a sense of responsibility in executive suites at companies. The day after the election, before irrevocable decisions are taken, I will have to intervene.”
The activist approach of the French government puts auto executives in a bind as they look to earn money needed to make investments in research to fulfill regulatory demands to make cleaner-running vehicles.
Peugeot’s Predicament
“Different countries are not encouraging at all the restructuring of the industry,” Renault CEO Carlos Ghosn said at an automotive forum in New York in early April. “As long as you cannot restructure, you may survive, but you are weakening all the time.”

Peugeot can’t afford that. Net debt last year more than doubled to reach 3.4 billion euros at the end of 2011. To boost finances, the automaker pledged to cut debt “significantly” this year after posting a 7.3 percent drop in sales in the first quarter to 14.3 billion euros. Money-raising efforts in 2012 included the sale of its 48-year-old headquarters building and the issue of 1 billion euros in shares at a 42 percent discount.

Peugeot also agreed to a partnership with General Motors Co. (GM) aimed at reducing purchasing costs and development spending in an effort to revitalize European operations. As part of the deal, GM bought 7 percent of the French carmaker.

None of those efforts will do much to overcome Peugeot’s overcapacity problem. The manufacturer said its European capacity utilization rate dropped to 83 percent in the first quarter. Its full-year capacity utilization rate will be about 75 percent, according to IHS Automotive estimates.

Too Many Cars
“The situation will continue to be as bad for Peugeot” after the elections, said Kristina Church, an analyst at Barclays in London. “It can’t go on like this. Whatever the government, the question will be: Do you prefer a company that survives or one that continues losing money?”

Renault is also battling overcapacity, with a European factory utilization rate of 75 percent for 2012, according to IHS Automotive estimates.

The company, which is based in the Paris suburb of Boulogne-Billancourt, is more directly tied to the government through the state’s 15 percent holding. As part of the government’s activist approach, Ghosn had to pledge to make building upscale vehicles in French factories a priority to get approval for appointing a new chief operating officer.

“Today’s problem is about overcapacity,” union representative Sussest said. “It has nothing to do with right- wing or left-wing politics.”