When he took office in May in the midst of an economic crisis, French President Francois Hollande predicted his grace period would be short-lived. Within two months, his prediction was borne out when the country's biggest carmaker, PSA Peugeot Citroen, announced that it would cut 8,000 jobs and shutter an assembly plant in Paris.
The handling of the crisis, which has repercussions for the entire automotive industry, was the first major test of the new Socialist government. During campaigning, Hollande had promised that, faced with mounting unemployment, the government would prioritise dialogue with social partners.
And yet when PSA, after months of media reports of imminent job losses, finally confirmed that it would be forced to reduce its capacity because of falling sales and mounting losses, the government's first reaction was to tar and feather PSA's management. Several ministers accused PSA of having deliberately held back the bad news until former president Nicolas Sarkozy had left power. Hollande, in a Bastille Day television interview, accused PSA management of a past "lie" and demanded they renegotiate the "unacceptable" plan with trade unions.
Productive Recovery Minister Arnaud Montebourg's reaction bordered on belligerent. Despite PSA being a private company he declared the government had "a real problem" with the group's strategy, its new alliance with General Motors and "the behaviour of the shareholder." Montebourg was particularly critical of the decision by the company to pay dividends in 2011 after two years in which shareholders received none.
The Peugeot family, which owns 25 percent of the group, had failed to show solidarity, he suggested. The populist attacks served to divert attention from the competitiveness problems facing French industry that the government is loathe to tackle. Ironically, by siding overwhelmingly with trade unions, the government's tone harkened to Sarkozy's divisive style, but with the bosses, rather than trade unions, now in the role of the baddies. The centre-left Le Monde newspaper, which supported Hollande for present, dubbed Montebourg the "minister of counter-productive recovery."
The government's martial tone with PSA, in a time of crisis, was "largely counter-productive at a time when the priority, on the contrary should be unity around a common effort." Plus, a Socialist government whose predecessors had contributed to a public debt of 1.8 trillion euros was in no position to be lecturing others on management, the paper reflected in a front-page editorial Wednesday.
Analysts say both the carmakers and government share responsibility for the strategic errors that have turned the home of Peugeot, Citroen and Renault, from a net exporter of cars to a net importer. By focusing on the small- and medium-sized segment, PSA and Renault left themselves exposed to competition from carmakers in countries with lower labour costs, such as Hyundai and Kia.
PSA particularly is also paying the price of its late entry into emerging markets. Europe, where demand for cars is shrinking, still accounts for 61 percent of PSA's vehicle sales. The government has rowed in with a plan to increase subsidies for purchases of hybrid and electric cars.
The Plan of Support for the Automotive Sector unveiled Wednesday by Montebourg also includes 350 million euros towards research and development as well as improved access to funding for subcontractors and distributors. PSA said that state aid for innovation would be "an excellent thing."
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