Barely envisaged, the already contested relocations deserve to be defended

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Barely envisaged, relocations already contested deserve to be defendedWhile we continue to import massively the vehicles we consume, whether electric or thermal, the movement to relocate assemblies, barely begun, is already being contested in the name of the obvious economic advantages of globalisation. Faced with this counter-offensive from the supporters of globalisation, we must stand firm and continue to try to make electrification an opportunity for the reindustrialisation of the French car industry.

In terms of jobs, added value, volumes produced and foreign trade, the French automobile industry has experienced a fairly rapid descent into hell over the last twenty years. This is mainly due to the gap that has been created between the vehicles that the French buy and those that the manufacturers believe can be profitably assembled in France: the market is dominated by the B segment, which the French manufacturers have decided not to assemble in France.

Thus, if we take the "top 15" over the first 8 months of 2022, we find only 5 vehicles that are not "small cars" (308 in 7th place, 3008 in 8th, Duster in 9th, Arkana in 10th and Megane in 12th) and two are assembled in France. The first six (208, Clio, Sandero, C3, 2008, Captur) are in the B segment. None of them are assembled in France even though their combined market share is 24%!

Clearly, the French industry has been a victim of relocation within this 'Greater Europe of cars' which brings together the EU and its neighbours such as Turkey and Morocco, which benefit from customs agreements with the EU. For this reason, it is understandable that the talk of relocations that can be associated with the movement of electrification at full speed raises very high hopes in our industry. The question of whether these hopes are well-founded and whether, on the part of politicians and manufacturers alike, a real movement in this direction is perceived as desirable and/or possible is worth asking.

Indeed, apart from the socio-political analyses which - before and after the 'yellow waistcoats' episode - underlined the widening gap between territories and populations, winners and/or losers in globalisation, Nevertheless, the automotive news has been dominated for more than a year by a shortage of semi-conductors, which underlines the problematic nature of the submission of an entire industry to 'global value chains' which, in the name of Ricardian principles of optimisation of the international division of labour, allocate the entire production of a category of key components to a few players located in a single region of the world.

After the masks and respirators episodes, the fact that this crisis is 'open-ended' should, in itself, lead to a radical re-examination of purchasing strategies, with the criterion of unit costs being significantly underweighted and that of the risks of disruption being overweighted. Beyond that, given the importance of semi-conductors in terms of the reliability and performance of the vehicles themselves, it is the question of sovereignty and control of technologies that is thus raised. Globalisation and its 'laws' have very serious reasons to be questioned in these perspectives and everyone seems to agree.

Thus, in the extremely flattering portrait devoted to him by the weekly Challenges, Pierre-Olivier Gourinchas, chief economist of the IMF, states:
"We're not saying that we need unbridled globalisation without limits, we saw clearly during the pandemic that the production lines were extremely tense, that there was very little slack."
If one remembers the virtues of "just-in-time" until recently, this expression of the need for more "slack" could sound like a revision of the credo of the past. The economist hastens to temper re-localisation enthusiasms by adding:  
"Between resilience and efficiency, there is a real balance to be struck. But resilience is not the same thing as withdrawal. On the contrary, wanting to bring production chains back within national borders is something else: it is a discourse that goes beyond purely economic considerations."

In other words, the virtuous globalisation of value chains should not be thrown out with the bathwater of resilience. Those who argue that we should go that far are not doing economics but politics. In other words, the 'economic laws' of efficiency promotion impose free trade, globalisation, specialisation and - therefore - relocation. 
It is thus easy to understand - if only to caricature it - the ideological need for certain major international institutions and economists to light the fires and not to allow a powerful current of defence of various forms of protectionism challenging the recommendations of the WTO or the IMF to develop - or reassert itself.

Beyond the entirely legitimate political question - contrary to what Gourinchas suggests - the purely economic arguments that are then mobilised to underline what has been gained not only by multinationals but also by consumers when globalisation has, in almost all industries, reigned unchallenged deserve to be heard. Relocation, reindustrialisation and the quest for technological sovereignty are not necessarily synonymous, but they all refer to challenges to globalisation, the - very real - cost of which deserves to be appreciated. 

In the automotive sector in particular, the contours of the problem need to be clarified because, if we confine ourselves to the question of security of supply or if we reason in terms of the 'social and environmental sustainability' of value chains, we may end up defending the organisation of production at European level. If this is the case, a 'block' logic will prevail and the IMF and WTO will be unhappy, but the French automotive industrial problem will not be solved because it is very clearly defined in terms of intra-European competition.  

This means that the automotive reindustrialisation of France almost inevitably incorporates a relocation dimension which would correspond to a reversal of the movement of which the French site has been a victim for at least two decades: the Turkish, Slovakian, Slovenian or Moroccan sites of the two French constructors would lose to the benefit of French sites a part of the volumes that they have gained.
This relocation can be envisaged according to two logics. 

i) The first is to consider that the production organisation of manufacturers in Europe is and will remain defined at the level of the large region because this is the relevant scale which makes it possible to offer consumers at reasonable costs the diversity and quality of products which they legitimately demand and/or to which they have become accustomed. So, in the same way that Bursa or Trnava produce B-segment thermal vehicles for all European markets, Douai or Mulhouse will tomorrow produce accessible electric vehicles to be sold in Berlin, Madrid or Krakow as well as in Paris. 
ii) The second breaks with this logic and considers that, as in the case of food, we can seek shorter and more local circuits in the industrial sector - and the automotive sector in particular. The "easynomics" website summarises this alternative by considering that it "reinvents the relationship between producers and consumers". In this second perspective, the author of the column entitled "Relocating production: a false good idea?
"Relocating means tightening the productive fabric and thus amplifying the economic spin-offs. One person's income is another person's income. Buying a T-shirt from the local factory in the local shop provides an income for the manager who can then buy a basket of vegetables from the local farmer. The economy works in small pockets, dependent on each other. An 'ecolonomic contract' is born and transforms the relationships between individuals."

The second perspective, which brings to mind the Amap (1), may seem very curious in the automotive context. Nevertheless, when we subsidise the acquisition of electric vehicles with our taxes, we try to ensure, thanks to subsidies, that they are equipped with batteries manufactured in France, if possible by French or European players developing their own technologies based on French research. So, rather than continuing to import them from Slovenia, Slovakia or Spain, we want the electric vehicles in question that the French will buy to be assembled in France and to enable the structuring of a French electric cluster. We are also betting that, in the structuring of the cluster and in its capacity to rapidly acquire new skills in design and corresponding manufacture, the proximity of the market and of consumers is important. It is considered de facto that the global logic is not the one that best supports innovation and the long series of adjustments that its deployment requires.

This means that the simple relocation that would consist of stripping a Turkish or Slovakian Peter to dress a French Paul would probably be impossible and that, even if the politician were to pull it off, the consumer would suffer. Conversely, taking advantage of electrification to reindustrialise by using the proximity of the markets and the players in the ecosystem to develop new skills makes sense. In the first perspective, it may be a question of giving back to a French site which is on the verge of being marginalised a more enviable place in the regional production organisation of manufacturers.

It may also be a question of including this movement in new logics of organisation of automobile production based on a lesser disjunction between producers and consumers than those which globalisation had generated. Because both dynamics deserve our interest, we must listen to the sometimes well-founded criticisms of relocations but oppose them with fairly strong resistance, since it is true that the last few years should have had the better of this blind faith in the virtues of globalisation.

(1) The Amap are the Associations for the maintenance of peasant agriculture. They bring together local producers who seek to serve local customers.

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

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