France must negotiate its place in the new automotive Europe

Put at the foot of the wall by a kind of political overbidding in the decarbonisation requirements that are being placed on them, the players in the sector are paradoxically asking for both tax exemption and a reduction in charges and massive public support. Insofar as this demand is addressed in France as elsewhere, the Europe of the electric vehicle hardly breaks with its dominant software, which is that of competition between sites and countries. In this game, France's automobile industry has lost a lot so far and we can hope that, aware that this is a dead end, the government will take the opportunity to propose another Europe for the automobile, another positioning of France within it and ultimately another deal to our two manufacturers.
 In the preparatory documents for the meetings that will take place this Monday between Emmanuel Macron and the representatives of the industry, we read - in the form of a concession to minimal intellectual honesty - :
"The decline of automobile production in France is not linked to the energy transition since it began several decades ago, but the elements listed above show that the forced transformation to all-electric in the short term could accelerate this decline."
 
Both members of the statement are indeed true: 
i) given the lower employment content of an electric vehicle compared to a thermal vehicle, rapid electrification without relocation would correspond to a second wave of workforce decline for the industry that would only be partially compensated for by the jobs that might be induced outside the industry (in the field of recharging stations, typically); incidentally, a large proportion of the jobs created would not be in the same companies, nor in the same territories, nor for the same men and women as those eliminated; 
ii) this second wave of major decline in the workforce, which must be seriously considered over the next 15 years of the extinction of combustion engines that is about to be decided in Brussels and validated in Paris, will follow a first wave that took place in the past 15 years and corresponded to the relocation of small car assembly by French manufacturers that has taken place since the enlargement of the EU in the early 2000s.
Exhibiting for the umpteenth time FRP (Manufacturing Cost Price) differentials of B and C segment vehicles assembled in the CEECs (Central and Eastern European Countries) or in Southern European countries, The McKinsey-PFA document stresses that the 300 to 600 euro difference per vehicle is due (for the most part, i.e. for about 270 euros per vehicle, to which must be added the "purchase cost" differentials) to wage cost differentials and concludes that it is necessary, once again, to try to compensate for these differences by maintaining all the existing support mechanisms and by "dealing with France's competitiveness handicap". Thus, the 'conditions for a rebound in the automotive industry in France' consist of very large-scale support for the necessary structural investments to master the new value chains, massive support for the companies and employees affected and large-scale investment in recharging infrastructures.
 
This amounts to saying that we want to have our cake and eat it too: lower taxes and charges and all kinds of public support. This also means that the manufacturers and major equipment suppliers want publicly supported structuring projects within the framework of the IPCEI, for example, but that they do not want to give up the advantages they have gained from the competition between European sites, which has clearly led to favouring the CEECs, Southern Europe and the countries 'associated with the EU', such as Turkey and Morocco, to the detriment of French sites. There is nothing to indicate that, in exchange for one, we can envisage giving up the other.
 
 The relocation that Renault's Hauts de France project is hoping for is not a proposed course for a new automotive deal. Typically, ACC, supported by the EU and the French and German states, will open its third gigafactory in Termoli, Italy. Stellantis, which currently assembles most of the electric vehicles (BEVs) that its brands sell in France in Italy, Spain and Slovakia, does not seem to want to relocate the assembly of its B-segment electric vehicles in France. 
 However, we know not only that the R&D of the manufacturers and equipment suppliers that will enable them to remain in the world race will be much more willingly supported in France than elsewhere. We also know that the bulk of the electric vehicle market in the next 10 to 15 years will be concentrated in the Northern European markets and in France in particular and will very willingly concern B-segment vehicles. These sales in France and Northern Europe will be supported partly by purchase subsidies, partly by traffic restrictions imposed on thermal vehicles, partly by purchasing power and partly by recharging infrastructures.
 Moreover, faced with the very ambitious targets for growth in EV sales that they will have to accept for 2030 and 2035 if France agrees to Brussels' wishes, the industry is once again singing the tune of the inadequacy of charging stations without at any time proposing that this major aid to the commercial distribution of EVs by France could be offset by a net movement to relocate assembly.   
 
After the 2000s version of the European car industry was, for France, a time of competition between sites, which led to a relocation/de-industrialisation pairing, we could have hoped that, forced by the public authorities to undergo a very large-scale change and begging for its multiform support to succeed, the industry would agree to reverse this logic and exchange this support with the State in exchange for a gradual repatriation of part of the manufacturing process.
 
In the name of a competitiveness differential that was part of the enlargement process and that the 2008 crisis accentuated by breaking the wage convergence dynamic between France and Spain that had taken shape in the 1990s and 2000s, the industry has come to the Elysée Palace to ask for two things: It is also asking that the new Europe of the decarbonised automobile be a Europe against whose decisions the French State will protect it without accepting that in exchange the said State will not renegotiate the nature of the European automobile structure.
 
Europe's aim, decided in 2019 and which this week will lead to a ban on the registration of combustion engine vehicles by 2035, is to achieve carbon neutrality of the car fleet (cars, light commercial vehicles and heavy goods vehicles) by 2050.
 
From the perspective of the relatively wealthy countries of Northern Europe, this objective already seems extremely complicated to achieve, given the average age of the fleets, the price of vehicles and the weakness of household budgets 'available for the car' in a context where 'competing expenses', and in particular those relating to housing, weigh so heavily.
 
For the southern countries or the CEECs, the problem is even more difficult to resolve, given that the fleet renewal rate for new vehicles is far below 5%, and there is a risk of finding ourselves in a situation where these countries will manufacture clean vehicles that they will only be able to buy second-hand much later, thus enabling the French, Dutch and Germans to achieve a carbon neutrality objective that is unattainable for them. 
 
This question has not been asked for the time being, and by maintaining the logic of tax and social competition between the countries belonging to (or associated with) the EU, we are slowing down the growth of purchasing power in the countries concerned and drying up the means of their States to conduct policies to support household equipment in clean vehicles equivalent to those practised by the States of Northern Europe. The result is that, in the case of clean vehicles even more than in the case of internal combustion vehicles, the factories of the countries concerned will manufacture vehicles that are essentially intended for export. Because the European markets will remain structured in this way, the design and pricing of the vehicles imagined by the manufacturers for Europe will be for the solvent markets of Northern Europe and the competition between sites will be exacerbated by the fact that, because they are too expensive, the vehicles will be sold in smaller numbers and the manufacturers will face problems of overcapacity.
 
 To counter this system, the evils of which we have been suffering for the past 15 years and which is likely to continue and lead to the full force of the second wave, the foundations of the European automobile edifice should be laid to largely temper the logic of competition between sites by accepting that assembly plants should once again move closer to the target markets. To avoid this leading to dynamics that are too unfavourable to the 'new European automobile countries', which are currently massive exporters, they should be able to reposition themselves on the manufacture of clean vehicles that resemble the R5 or Spring more than the Tesla or ID4.
 
From this point of view, the idea that has been heard systematically for more than 10 years, according to which the competitiveness of the French site must be tackled first and foremost, seems very slight. If manufacturers are unable to be more imaginative in proposing another place for France in a remodelled European structure around the low-carbon vehicle, then it is the politicians who will also have to propose this industrial overhaul and/or this regional reorganisation. 
 
28/06/2021
 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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