France’s Renault highlights obstacles to reshoring industries
The Covid-19 crisis has highlighted the Western world's dependence on Asian countries for manufactured goods. But trying to reshore industries is difficult to put into practice – as shown by the case of French carmaker Renault, which is cutting jobs at home.
In a speech at the end of March as the coronavirus crisis raged, French President Emmanuel Macron argued that the pandemic calls for economic sovereignty: “We must produce more in France, on our soil” and “rebuild our national and European sovereignty.” This chimes with the centrist’s rhetoric before the crisis about a “Europe that protects”, tempering the effects of globalisation through the barrier of the EU single market.
Like many other world leaders, Macron has unleashed massive state intervention in the economy to manage the crisis. He announced plans to quickly ramp up production of face masks and ventilators to address shortfalls, while his government has disbursed billions of euros to businesses affected by the virus – warning that it “won’t tolerate” such companies rewarding shareholders with dividends this year – and responded to the threat of food shortages by exhorting supermarkets to “stock French products”.
The French government has also been embarrassed by revelations in French daily Le Monde in early May that France was self-sufficienct in medical supplies in the 2000s, only to dismantle that system in the 2010s, leading to drastic shortfalls at the start of the coronavirus pandemic. France has been notably dependent on Chinese supplies of face masks.
For its part, France’s employers’ union Medef has given Macron’s approach its seal of approval. In the recovery plan it presented on May 28, the organisation advocated “targeted relocation of strategic sectors in France and Europe, with healthcare a priority”.
Job cuts at Renault
The French government has tried to implement this agenda with carmaker Renault, in which it owns a 15 percent stake. In return for a €5 billion bailout for the company, Macron asked for a “strong commitment” to “relocating value-added production” to France.
But contrary to the government’s wishes, Renault announced on May 29 that it would cut 4,600 jobs in France, out of 48,000 posts, as part of a savings plan.
Industries like car manufacturing may pose limitations to what government reshoring agendas can do. Automotive firms are struggling; production in Europe and North America is estimated at 50 to 70 percent less than it was a year ago, as employees were asked to stay at home during lockdowns and people are buying fewer cars amid the economic crisis.
As The Economist headlined in April: “The car industry is facing a short-term crisis and long-term decline." Concerns over climate change herald the looming death of its speciality – the internal combustion engine – and innovators like Tesla threaten creative destruction by mastering new, green technologies.
While stocks in companies like Amazon – seen as more than capable of weathering the current economic storms with impressive long-term prospects – have continued to rise during the Covid-19 pandemic, Renault’s share price has more than halved since the start of the year. Its current price to book value (the total worth of its assets) ratio is a paltry 0.17 percent – suggesting that investors have low expectations for its performance over the long run.
Nevertheless, there are things the government can do in the all-important healthcare sector, argued Nathalie Coutinet, a professor of economics at Paris 13 University: “Before talking about relocation, let’s try to preserve the existing industrial fabric first,” she said, pointing to the Famar factory in Lyon, which manufactures drugs currently being tested for use against Covid-19. The factory has been in receivership since June 2019, and is still awaiting a buyer.
In the context of Covid-19, “we’ve got to take into account public utility as well as shareholder value,” Coutinet said.
“Relocations must be thought of on a case-by-case basis,” Louis Gallois, president of French business think-tank La Fabrique de l’Industrie and president of French car manufacturer PSA – which owns Peugeot, Citroen and Opel brands – told French media network BFM TV.
There are possibilities for it to happen in the strategic health, food and digital sectors, Gallois continued. But it’s not possible in some sectors such as car manufacturing, he argued, noting that export markets often require local production in exchange for access.
“A complete relocation of production processes at a national or regional level raises the problems of rising production costs and the lack of local skills,” the French credit insurer Coface said in a memo. “Even if these two problems are resolved, this new local production process would still be dependent on the supply of raw materials, which remains constrained by their location.”
But these signs show that – however unrealistic a prospect it may be – reshoring is popular in France. A recent survey found that 89 percent are in favour of relocating industries – including 47 percent for doing so completely – even if it pushes prices up for consumers.
This article was translated from the original in French.
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