Can the government’s response to the Covid crisis stop the downward spiral of the French automotive industry?

Abstract:

This presentation is part of two joint sessions based on the Volkswagen foundation supported project "Strategic response to COVID-crisis in the automotive industry: comparing European and global approaches".

The project

The ongoing COVID-crisis will have significant implications for the future trajectory of the global automotive industry. Multiple disruptions of cross-border supply chains since the outbreak of the pandemic have revealed the fragility of the sector’s geographically stretched just-in-time production systems. The huge demand-side crisis in the year 2020 – and now extending to 2021 – has put significant pressures on the automotive producers dependent on such key developed markets as the EU, the US, or Japan. But perhaps most importantly: the COVID- crisis comes at a very difficult moment for the automotive industry, in which the sector is entering the entirely new technological paths of electromobility and digital driving systems. While already before the pandemic, these technological changes were perceived as serious challenges for incumbent producers and established national industries, the COVID-crisis will likely accelerate the disruptive change and create additional windows of opportunity for new firms and new global competitors. Against this background, the general goal of the present research project is to explore the emerging structural implications of the COVID-crisis for the global automotive industry by studying the long-term response strategies of automotive producers and national governments in different countries. In doing so, our analysis focuses on the production of passenger vehicles from the conceptual perspective of global production networks embedded in national and regional political economies. Regarding case selection, the project analyses the strategic reactions by firms and public actors from the following five key car-producing countries: Germany and France, as two European high-wage economies that are home to important multinational producers and host significant automotive production bases; Japan and the United States, as two other members of the traditional automotive “Triad” (in addition to the EU); and finally: China as probably the single most important newcomer within the global automotive sector, which is likely to strongly benefit from the new windows of opportunity created by the electrification and digitalization of the car.

The French case

Given the long decline of the French automotive industry, the paper will analyse first the main causes of this decline focusing in particular on the key role of the European regulations which have pushed car sales upmarket – making the life of generalist carmakers such as Renault and PSA more difficult – and have also fostered in the name of "competitiveness" relocations to low-cost countries integrated in the EU or in the European custom union. It is from this perspective that we will discuss the joint impact of the COVID crisis and of the accelerated electrification of car sales in Europe: will it accentuate this decline of the French automotive industry, or will it represent an opportunity to restore at least partially its competitiveness, in particular in the emerging field of electromobilty? 

To answer this question we will analyse both the French government and carmakers responses to the COVID crisis, with a particular attention at the interplay between these different actors as well as at the concrete effects of the measures implemented on car production, models allocation, investment plans and employment. 

While we will keep open all the scenarios in our analysis, we will conclude that the chances of rescuing the French automotive industry from its long decline appear for the time being to be slim. Not only because this decline has a strong institutional inertia embedded in the past investment decisions taken during the last twenty years, but also beacuse none of the measures taken so far deals with the structural causes, mainly located at the European level, that had justified in the first place these past decisions.