French Government's Automaker Bailout Offer Has Strings Attached
By Michelle Krebs January 20, 2009The French government is working on an aid package for domestic automakers Renault and PSA Peugeot Citroen. However, the automakers don't agree on one of the major strings attached -- no closure of French factories.
Renault, already 15 percent owned by the French government, said it was planning no plant closings in France anyway so the restriction is less of a problem. However, analysts say Renault has the greatest overcapacity of any European automaker; they estimate Renault, which has lobbied the government for funding, needs about $12 billion in working capital a year.
Further, Renault-Nissan CEO Carlos Ghosn has argued French car production is uncompetitive in labor costs and business taxes, particularly compared with Renault's plants in Eastern Europe or Turkey. Ghosn and others have stepped up efforts to gain government assistance in recent weeks as car sales in Europe plummet -- an 18 percent drop in December alone. "It is the survival of some manufacturers, suppliers and distributors that is at stake," Ghosn was quoted as saying.
PSA Peugeot Citroen, owned by the Peugeot family, needs the money less and is less willing to give up its independence and decision-making about plants.
Still the government is adamant, saying it won't give the automakers financing without concrete pledges to keep French factories open. About 10 percent of France's labor force -- or 750,000 people -- works for auto companies and their suppliers. France is considered one of the higher cost countries in which to make cars. Both French automakers have been moving manufacturing to lower-cost countries in Eastern Europe and Asia.
The government aid package, expected to total nearly $8 billion in loans for automakers and their suppliers, could be finalized early next month. The plan would make it easier for the financing arms of Renault and PSA Peugeot Citroen to obtain credit guarantees. The plan also will include an expansion of credit to consumers. Already, France has instituted a scrap program that gives consumers 1,000 Euros for ditching their old car for a new, low-emissions one.
LEAVE A COMMENT