The preannouncement came Thursday evening: PSA Peugeot Citroën, France’s largest automaker, would have a write-down of €4.7 billion. On top of a hefty operating loss. It would be colossal. An all-time record.
Rumors spread immediately that PSA would need a bailout. The second in four months.
PSA passenger car sales in France dropped nearly 17% in 2012 from an already awful 2011. In January they dropped another 16.7%. Sales for all automakers dropped 15%, and PSA’s market share had eroded further.
Kia-Hyundai sales jumped 21.2%, the only major automaker with gains. Even Volkswagen Group got clobbered: down 23.9%.
PSA isn’t internationally diversified enough. It doesn’t have much in China and nothing in the US, the largest markets in the world, both growing. It’s mired in Europe where auto sales have ground to a halt.
It’s bleeding €200 million a month. It’s trying to lay off 8,000 workers and shutter its plant in Aulnay-sous-Bois. And its Banque PSA Finance was bailed out last October with €7 billion in taxpayer money.
The government was so worried that it was actively studying a bailout, sources told the Liberation after the losses were announced. It was just hypothetical. “But if a capital infusion would become inevitable, the state could participate,” the source said. Instantly, a cacophony of discord erupted—within the Socialist government.
Another chapter in the saga of the deindustrialization of France—a process that has afflicted France, like other developed nations, for decades as manufacturing has wandered off to cheaper countries. But now there’s a near national consensus: the state needs to step in and stop it, according to a poll that CSA conducted for Les Echos and the Institut Montaigne.
Deindustrialization has been on the front burner since the presidential campaign last year. But now, in the poll, it came down to a single question: Is the decline in manufacturing a phenomenon that can be reversed? The resounding response spread across all professional levels, all ages, and the entire political spectrum—78% of the respondents said yes.
The French expect the government to do “the maximum” to prevent plant closures, explained Jérôme Sainte-Marie, director of CSA’s political opinion division—something that those on the extreme right and left had been clamoring for all along. Now they “find themselves comforted” by the survey results, he said. And it puts the government in a quandary.
So far, it has shied away from nationalizing troubled plants. A risky path: the phrase by Lionel Jospin that “the state cannot do everything” was “absolutely impossible to maintain,” Sainte-Marie said. “Public opinion doesn’t want to hear it.”
He was referring to a Socialists nightmare. Jospin, Socialist Prime Minister from 1997 to 2002, had admitted that he could not prevent layoffs at a Michelin factory, that the state couldn’t do everything (“l’État ne peut pas tout”). A phrase—or a concept, rather—according to some political soothsayers, that contributed to his humiliating defeat in the 2002 presidential election. He was trounced in the first round by right-wing Jean-Marie Le Pen, which forced the left to vote for Jacques Chirac in the second round just to keep the unpalatable Le Pen out. An unforgettable horror story still for the Socialists.
For a Socialist government to admit again that the state couldn’t do everything, that some layoffs and plant closures would be allowed, was fraught with perils. During the presidential campaign, they’d promised the “reindustrialization” of France, and “the French took them by their word,” said Sainte-Marie.
So what to do about PSA?
“This company cannot, must not disappear,” said Budget Minister Jérôme Cahuzac Friday morning during an interview. “We have to do what we have to do so that it survives.” He’d already worked out the details: the bailout money would come from the state-owned Strategic Investment Fund (FSI).
Minutes later, Finance Minister Pierre Moscovici disagreed: “Jerome Cahuzac talked about a theoretical scenario and the tools available to the state,” he said. But “such a state bailout is not being considered, is not necessary, and would not add anything.” Sources in his entourage agreed, “A capital infusion by the state is not on the agenda.”
By midday, Prime Minister Jean-Marc Ayrault jumped into the fray. A bailout was not “on the agenda,” he echoed. PSA hadn’t requested it. Though there was “a tool, the FSI,” that could do it. But “this question hasn’t been raised today. Therefore, there is no question.” But if necessary, he grumbled, PSA would have to “be saved at all costs.”
And so continues the saga of the decline of the private sector à la Française. Tuesday morning, the 168 employees of automotive component maker DMI in Vaux, a tiny town near Montluçon in the Department of Allier, smack-dab in the middle of France, rigged about ten gas cylinders throughout the factory they’d been occupying and threatened to blow it up—unless their demands were met. Read.... French Workers Threaten To Blow Up Their Factory.
Please follow Business Insider on Twitter and Facebook.