What if Bruno Le Maire was inspired by Donald Trump...

Last Friday Autoactu released two articles that unintentionally referred to each other.

 

One, signed by Laurent Bodin, dealt with the fate of PSA's Mulhouse assembly plant, which saw the production of the new 2008 model leave for Spain under the now well-known doctrine that French sites should not assemble vehicles from segments A and B, even if they are SUVs.
The other, signed by Bertrand Rakoto, analysed the automobile component of the new free trade agreement between the United States, Canada and Mexico and the constraints it imposes on manufacturers to limit competition between high-wage and low-wage countries and relocation to Mexico.
At the end of 2019, when Minister Bruno Le Maire (French Ministry of the Economy) finally seems to measure the extent of the problem of offshoring in this industry and dares to speak of "relocalising", what is emerging in North America deserves to be highlighted. 

 

Indeed, although the trumpeted MAGA (for "Make America Great Again") did not prevent American manufacturers from continuing to give up making sedans in the United States, the USMCA agreement refers to a clear attempt supported by Canada, Democrats and unions to break a deadly dynamic.
This regional dynamic, which has plagued Michigan for years, is very similar to that experienced by the French site within its region: for the cheapest models, manufacturers within a free trade zone relocate assembly by building factories in low-wage countries; suppliers follow the movement when they do not precede it; the dynamic is cumulative and the fact that the market is doing well ends up implying larger trade deficits.

 

From this point of view, the situation in France is even worse than in Michigan, because the American market has for several years favoured SUVs and light-trucks assembled predominantly in the United States and has abandoned sedans, while French consumers continue to buy a majority - 55% in 2018 - of vehicles in the "economy and lower" segment from French manufacturers in particular.
Thus, if we take the 15 best-selling vehicles to individual consumers in November in France, 13 of them come from the ranges marketed by PSA and Renault, since only Yaris and Polo appear in this top 15, but only 5 (6 if we include 2008) are assembled in France: the Yaris, the 3008, the C5 Aircross, the 308 and the Zoé; they represent 8,173 registrations out of 33,139, i.e. less than a quarter.

 

In fact, the fairly good year that 2019 will finally have been for the French market and French brands is reflected in an increased trade deficit: for "automotive construction products", exports are down and imports are up; for "automotive equipment", which until 2017 had a surplus balance, the deterioration continues as the relocated assembly lines of the French carmakers require fewer and fewer parts manufactured in France.
Since, as we saw during the previous crisis, manufacturers tend to adjust their volumes downwards by first sacrificing sites with high salaries, while consumers tend to move down the range, it is difficult to be optimistic for the French site and Bruno Le Maire is not wrong to "trump up" his speech: as defended in 2012 in the white paper of the Association of Automotive Industry Site Local Authorities (ACSIA), there is no salvation for the French automotive industry without relocating the assembly of segment B vehicles.

 

Since the last crumbs of these productions from the French brands that were still to be found in Poissy, Mulhouse and Flins have just left, it seems a little late to show up.
Nevertheless, the awakening is meritorious and, faced with the triple challenge that will represent in 2020, the turnaround of the European markets that is already taking shape, the likely continuation of the movement of de-designing and electrification, doing everything possible to ensure that relocations take place is undeniably timely. The problem is how to make such a move in the geopolitical context of the EU and its tariff policy. Indeed, manufacturers benefit in structuring their European industrial organization not only from the "single market" and the free movement of goods that it implies, but also from an EU commercial policy that very willingly extends these rules beyond the EU by allowing manufacturers to include Turkish, Moroccan or Serbian sites in their European industrial facilities.

 

As a result, the logic of putting sites in competition no longer seems to have any limits. At both Renault and PSA, the first victims were the French sites. The second victims may be Romanian or Slovakian sites whose desire to see salaries increase is tempered by the construction of Moroccan sites.
Insofar as, in the "new member states" as well as in countries with privileged trade agreements like Morocco or Turkey, this logic slows down the increase in purchasing power and limits the growth of domestic markets, these sites are sites of "pure offshoring" which most of the time find more than 90% of their markets in Western Europe. Since the EU did not want an exception to the principle of freedom of movement to be made for second-hand vehicles, households in the new member states are equipping themselves with massive imports of old vehicles, particularly from Germany.

 

On the contrary, if, as happened when the Iberian Peninsula joined the common market in the 1980s, growth in production was to be accompanied by growth in purchasing power and markets, then the factories would have a share of their customers on their doorstep and the famous "overcapacities" we will soon be hearing about would be lower. Incidentally, differences in labour costs would be reduced more quickly and there would be less incentive to offshore with them. This seems to be the logic behind the new North American free trade agreement, which goes so far as to require Mexico to allow the formation of unions. This is the logic in which the new automotive countries, both inside and outside the EU, should finally be able to position themselves.

 

It should be remembered that when PSA officials present the Kenitra plant, they continue to say that it is essentially intended to supply the markets of Africa and the Middle East.  
In the same way, when the Trnava plant was created, it was a question of meeting the demand of the new Member States. We know what happened. Faced with this, we can resign ourselves to the fact that the self-centred and "Keynesian" development logics of the 1980s can no longer be applied in a globalised world. We can also take inspiration from the American approach and look for a new deal between high-wage and low-wage countries in the region to avoid the electrification/demand reduction couple leading to an accentuation of the logic of competition between sites.

 

Although France does not have the power of the United States, it still has some means of exerting pressure on its manufacturers in 2019.
In addition to its presence in the capital, which the State has so far hardly used to influence the choice of location, Bercy is facing strong demands to facilitate the forced march towards electrification imposed by the EU for 2021 and later 2030 on the French market. It would not seem insane that the development of this favourable environment should involve some industrial compensations concerning, for example, the assembly of vehicles whose purchase will be subsidised.
This is what is emerging in Germany, for example. If this is not the case, given the manufacturing costs of these vehicles and the difficulty of passing them on to the customer, manufacturers will consider that they have no choice but to offshore this production as well.
Already, LG batteries used in vehicles of French brands are imported from Poland. It is doubtful whether Renault plans to assemble the K-ZE in France. For the moment, the Zoe remains in Flins but at PSA, only the DS3-Crossback e-Tense is assembled in France, then the e-208 is Slovak and the e-2008 Spanish.

 

It's late to wake up and the damage is already considerable.
However, there is a wind blowing over the world that is rather favourable to the idea of disciplining liberal impulses a little. We must take advantage of this to undertake relocations and limit the negative impact on the new automotive countries by organising the growth of their markets.

 

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Translated with www.DeepL.com/Translator, corrections by Géry Deffontaines