PARIS/LONDON: Marie-Estelle Cevatheean dreams of a new car that would be better suited to her growing family after having a baby late last year. Instead, with no work, the 31-year-old Parisian can’t afford to replace her seven-year-old Citroen C3 subcompact.
“We don’t have the money yet to buy a new car,” Cevatheean said. “I need to find a job first.”
With unemployment in France rising and consumer confidence at a record low, auto sales in the country have tumbled more than any other major European market this year. That portends more pain for French automakers Renault and especially cash- strapped PSA Peugeot Citroen.
The French automakers will reveal the extent of their home- market woes when they report first-half earnings in the coming days. Suppliers Michelin and Faurecia reported on July 25 a drop of more than 10 per cent in first-half profit as carmakers pushed prices lower on slumping demand.
“France is probably the most vulnerable market today,” said Yann Delabriere, chief executive officer of Faurecia, Europe’s largest maker of car interiors. The Nanterre-based supplier posted a 16 per cent decrease in operating profit to €256 million (US$338 million).
MIXED LOT
Paris-based Peugeot, which will release results on July 31, is due to report an operating loss of €315 million, versus a profit of €4 million a year ago, according to the average of four analyst estimates compiled by Bloomberg.
Renault is set to fare better, as its alliance with Nissan Motor gives it a stronger presence in growing markets outside Europe. The company will probably report operating earnings of €389 million on July 26, down 19 per cent from a year ago, according to the average of four analyst estimates compiled by Bloomberg.
Peugeot is in talks with unions about improving productivity at factories, following Renault’s lead after it reached an agreement with workers in March. Peugeot, which is closing one factory near Paris and eliminating 11,200 jobs, has said it may need more restructuring if the European market continues to slide.
SLUMPING DEMAND
“We haven’t hit the floor in France yet” because higher taxes are set to weaken demand further, said Florent Couvreur, an analyst at CM-CIC Securities in Paris. IHS Automotive forecasts a 6.9 per cent decline this year to 1.77 million passenger cars. Couvreur predicts the market could fall as low as 1.5 million vehicles.
Michelin, Europe’s largest tyre-maker, said on July 25 that first-half operating profit excluding one-time items declined 13 per cent to €1.15 billion. Demand for replacement tyres for cars and light vehicles slumped 4 per cent in Europe in the first half because of the “uncertain” economy, the company said.
Peugeot, after consuming €3 billion in cash at its auto division last year, is in talks with banks on options to shore up its finances including a capital increase and selling assets such as a stake in its auto-loan arm Banque PSA Finance, sources said. The talks are still open and there’s no clear direction yet, they added.
TUMBLING SALES
Car sales in France tumbled 11 per cent in the first half, versus a 10 per cent decline in Italy, an 8.1 per cent drop in Germany, and Spain’s 4.9 per cent slip.
This year’s fall in French car sales follows a 14 per cent dive in 2012, according to CCFA, the country’s automakers’ association. Peugeot and Renault together control 55 per cent of their domestic car market. The nearest foreign competitor is Volkswagen, with 12 per cent, according to CCFA.
“I’m afraid the French market isn’t yet stabilised,” said Jacques Aschenbroich, chief executive of Paris-based Valeo, France’s second-biggest maker of auto parts. France would represent an exception as the worst is over elsewhere in Europe, he said.
WEAK SPENDING
More than 3.26 million people are jobless in France, according to the national statistics office Insee. That puts the unemployment rate at 10.8 per cent, the highest in 14 years. And consumer spending power has been weakened by a €70 billion tax increase over the past three years.
Soft demand has pushed carmakers to offer generous incentives to lure buyers. For signing a three-year lease on a Citroen C4 Picasso minivan in April, Andre Grall got a Samsung tablet computer valued at €500, a case of wine and a cleaning kit for windshields and hubcaps.
“It’s the first time in my life I’ve gotten so many gifts for a car,” said the 62-year-old retired French railway employee. “They must be desperate.”
(BLOOMBERG)
