Peugeot swerves into Hollande's path

Workers of French carmaker PSA Peugeot Citroen at the Le Janais factory demonstrate in Chartres-de-Bretagne. Alain Jocard / AF

MARSEILLE // When François Hollande looks back on his early weeks in office as the French president, he may recall a grim day in July 2012 as the abrupt ending of his honeymoon with the electorate.

It was one day short of Friday the 13th when the Peugeot-Citroën group announced it would cut 8,000 jobs in France, including the outright closure of its big plant at Aulnay, north of Paris. But Mr Hollande was out of luck all the same.

If French car workers supposed that voting into power a sympathetic government would keep them in work, the troubled company's statement brought a stark reminder of economic reality.

With the car market in Europe shrinking as the euro-zone debt crisis bites deep, the cuts, like those at Air France, came as little surprise.

Mr Hollande accused the group of hiding its intentions until he had beaten his conservative, more business-friendly rival, Nicolas Sarkozy, in the race for the Elysée. And in one sense, he was right - the writing had been on the wall for months.

France's leading car maker, Europe's largest after Volkswagen and the world's eighth-biggest was known to be in desperate straits.

On the morning of the announcement, the French newspaper La Croix even asked whether France's automobile industry had a future.

For all of Mr Hollande's talk about his government not standing idly by, it is difficult to see how much room for manoeuvre he actually has.

This week could prove crucial to whatever hopes his government holds that it has the power to avoid the worst.

Tomorrow, Mr Hollande's minister for industrial recovery, Arnaud Montebourg, will present his cabinet colleagues with a blueprint for aiding the French car industry as a whole and Peugeot in particular. Talks are also due to begin between the company and trade unions on the details of the restructuring plan. The unions are meanwhile challenging its business basis, hiring their own experts to test the company's figures.

Peugeot is not the first European motor manufacturer to run into serious financial problems. It is relatively rare in still having as a figurehead a man whose ancestors gave the company its name.

Members of the Peugeot family still hold the biggest stake, just more than a quarter. The company and family were easy targets for criticism, and the Socialist government lost no time in demanding explanations on why dividend payouts had continued as the crisis grew.

Thierry Peugeot, who chairs the company's supervisory board, quickly tired of the attacks. When Mr Montebourg raised the volume to talk of lies and deceit, Mr Peugeot told the conservative Le Figaro newspaper: "We are ready to accept criticism, but there are limits."

Mr Peugeot said the company was aware of the gravity of its "painful" plan.

"I understand that they can cause shock within the company, in government and across the country," he said. "But we are responsible people, industrialists, entrepreneurs. We have values of humanism and respect … we will ensure these values are applied in the implementation of the plan."

In the grander scheme of Peugeot's recovery proposals, it is debatable whether all the political fury in the world can stop a private company taking the measures it deems necessary to protect its business.

"We looked at all alternatives," said Peugeot's chief executive, Philippe Varin, in an interview with the newspaper Le Monde.

"We cannot have factories that work at half their capacity, in the long term, when the European market has shrunk 25 per cent in five years."

Other figures help explain why Peugeot felt driven to drastic action and also why there are question marks clouding French industry.

Average hourly labour costs in France, according to the European Union's statistical service, Eurostat, put France in fourth place among member states, at €34.20 (Dh151.93). Belgium (€39.30), Sweden (€39.10) and Denmark (€38.60) were higher. Germany's hourly rate was €30.10, and the United Kingdom's was as low as €20.10.

In Slovakia, where Peugeot decided to leave its Trnava plant unscathed, the hourly average is €8.40.

In the short term, Peugeot says it must find savings of €1 billion.

So what went wrong for Peugeot? In his Le Monde interview, Mr Varin appeared to suggest the company, which has always bucked the trend for France's multinationals by keeping its working language as French, was a touch too loyal.

"Forty-four per cent of the group's production is French," he said. "We contribute positively, up to €10bn to France's trade balance."

Had "economic patriotism" damaged the company's strategic planning?

"It is no doubt one of the reasons," Mr Varin said. "The group's internationalisation took some time."

A week after the Peugeot bombshell, an opinion poll recorded a five-point drop in Mr Hollande's approval rating.

He remains a long way from the depths of discontent experienced by Mr Sarkozy, another president elected on promises of reform.

But the Peugeot crisis reminds the Elysée's new incumbent that he must quickly find ways of making French industry seem viable to avoid becoming as unpopular as his predecessor.

twitter: Follow and share our breaking business news. Follow us

iPad users can read the digital edition of business section as it was printed via our e-reader app. Click here