The French car industry is in crisis, and figures just released for new car sales in France in 2012 underline the bleak prospects for the immediate future, with the lowest number of units sold since 1997.
There were just under 1.9 million new cars purchased in France last year, according to figures released last week by the French carmaker’s association, the CCFA, which also warned that in 2013 the market would be “at best like that of 2012”.
The results follow a Europe-wide trend, (with the notable recent exception of the UK, which in 2012 saw sales increase year-on-year by 5%), with new car sales steadily falling, notably since 2008. The global, EU-wide figure of 12 million units sold in 2012 is the lowest since 1993, according to Fitch Ratings.
In a year-on-year comparison, new car sales in France shrank by 13.9% in 2012 and the French makes were affected worst, with Renault sales in 2012 down 22.1% (including its low-cost filial Dacia) on 2011, followed by PSA Peugeot Citroën, down 17.5%.
The tumble in the French market raises important questions of strategy for the two national makes which are – and in particular PSA, which is Europe’s second-largest carmaker by volume behind the VW group – less present than a number of their competitors in emerging countries, where car sales are growing.
According to a recent report in French daily Le Monde, the number of cars produced in France has halved over the past nine years, with 1.6 million units built last year against 3.2 million in 2003. Across all 12 French car-making plants, production is now at between 50% and 60% of capacity, whereas the lower limit of activity for a plant to breakeven is broadly estimated at between 70% to 80% of capacity.
The implications, in a moribund market that is forecast to remain so, are grave. About 700,000 jobs are directly dependent upon the French car industry, including the two manufacturers and the supply industry, according to calculations by the French Economic, Social and Environmental Council, the CESE, an influential government-sponsored consultative body on economic issues. Concerning suppliers alone, 10,000 jobs were lost each year between 2008 and 2010, and while this fell to 3,000 lost in 2011, the figure rose again to 6,000 in 2012.
Last July, PSA, with declared debts of 2.5 billion euros, said it would shed 8,000 jobs across its manufacturing plants in France, on top of some 3,500 others already earmarked in 2011, and will close down one of its major production sites, at Aulnay-sous-Bois, north of Paris, by 2014. In September, the company was dropped from France’s blue chip index, the CAC 40, of which it was a founding member 25 years earlier.
Over the last five years, PSA’s capitalization has shrunk six-fold, and Renault’s has been halved, saved in part by the group’s 43% share in Nissan.
The dramatic year-on-year fall in French manufacturers’ sales on their own turf is in part due to the ending, in March 2011, of the state bonus paid to new car buyers who traded in an old car for their purchase. The generous scheme, created by the government in 2008, temporarily encouraged sales, but it also in turn meant that there were fewer potential new car buyers immediately after it ended.
But beyond this, Renault and PSA are suffering, like some others in Europe (notably Fiat, Opel and Ford), from their situation as a ‘generalist’ carmaker, as opposed to those which have a specialist offer of high-end vehicles, or niche models. The French model range centres on small and medium-sized vehicles and while this is the most popular sector, representing some 75% of the market in France, it is also the least profitable and the most crowded in terms of competition.
Foreign-built models 'cannibalising' home production
Carmakers with cheaper ranges, such as that of South Korea’s Hyundai group, which includes Kia, are making significant inroads into the French market. With extremely competitive prices and unusually-long guarantees of between five and seven years, the market share for Hyundai and Kia almost tripled during the year, with a 28.2% year-on-year increase of sales. While total Hyundai-Kia sales in 2012 of 52,000 vehicles may appear derisory when compared against those of France’s most popular model alone, the Renault Clio, with 119,000 units sold in 2012, the trend is clear and probably set to last.
Renault is already following that route with its Romanian filial Dacia. Built outside France, these low-cost models were originally intended for sale in developing countries, and not its domestic market. While sales of Renault-badged cars in France fell year-on-year by 24.7% in 2012, those of Dacia fell by a comparatively small 9.2%. Following the recent launch of a family-sized vehicle, Dacia is to introduce two updated models in 2013, whereas Renault has launched only one new model since 2009 under its own badge, the Clio IV.
The company has invested heavily in Dacia manufacturing plants in Romania, Morocco, Brazil and Russia, and recently announced the building of a factory in Algeria.
Presenting its report on January 2nd, the CCFA observed that, in 2012, “all the generalist makes have lost ground, while those at the top of the range have maintained their position”. Indeed, among PSA and Renault’s generalist competitors, Ford, Opel, Seat and Fiat also saw sales tumble in France. Meanwhile, the German high-end makes actually increased sales in France, with Mercedes up by 5.3 %, Audi up by 4.7 % followed by BMW, at 2.3 %.
In a wide-ranging report of the French automotive industry dated last October, the CESE noted that generalist car manufacturers were “stuck between entry-level cars made in countries where employment costs are lower (central and eastern Europe, Spain, Portugal, North Africa) and the dominance of German manufacturers at the top of the range.”
But the CESE also underlined the sting in the tail for French manufacturers after they shifted production of certain models, essentially those at the lower end of the market, to countries where the demand, along with that in France, has crashed. “Where plants in Slovakia, Poland or Slovenia were initially planned to meet the growth in local markets, it is plain that the insufficient development [of these markets] has led to exports back towards the home markets of European carmakers,” the CESE reported. “These strategic choices [were] disputed by union organizations which argued they ran the risk of cannibalising domestic production. This is what happened.” In other words, PSA and Renault plants in France are increasingly in a position of producing models that compete with those of the same makes’ subsidiaries abroad.
Economic crisis joined by a shift in habits
PSA Peugeot Citroën last month announced a tie-up with US giant General Motors (GM), under which Peugeot, Citroën and GM’s German subsidiary Opel will share platforms on five vehicles. But there was disappointment for PSA in that there will be no cooperation on a top-end saloon, and no commercial cooperation deal in emerging markets where GM has a strong foothold, such as Brazil but also, more importantly for PSA, China, where PSA’s national rival Renault is better established in large part thanks to its partner Nissan.
The emerging markets are crucial for PSA, as for all manufacturers. While the EU-wide new car sales market shrank by 25% between 2007 and 2012, new car sales worldwide have never been stronger.
Brazil now accounts for 5% of the global market, with the same share as Germany, while China represents a whopping 25% of all new car sales. According to a forecast study for The Financial Times, production of cars and light vehicles in China will this year for the first time overtake that of Europe, with a total 19.6 million units against 18.3 million on the old continent. While several new manufacturing plants are to be created in China in the years to come, there are already five announced for closure in Europe between now and 2016.
Meanwhile, commenting on the decline of the French new car sales market, Le Monde business correspondent Stéphane Lauer observed that the economic crisis was not the only cause for the débâcle, but that there was also the effect of an important shift in the habits of French car buyers. Citing statistics from the CCFA, he noted that in 1980, 55.7% of cars purchased were new cars, whereas in 2012, just 41.1% of cars bought were new, significantly less than the five million second-hand cars sold during the year. Furthermore, while in 1990 car-owners kept their vehicles for an average three and a half years, today they hold on to them for an average five years.
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English version: Graham Tearse