By on April 10, 2012

A Financial Times report on the “de-industrialization” of France (sub. required), and the erosion of the country’s manufacturing base took a trip to a Peugeot factory, where the new 208 is leaving the lines and gearing up for a big launch. Peugeot has been suffering financially in recent years, amid a backdrop of a declining manufacturing industry, some employees are blaming the heavy burdens of France’s welfare state.

One employee alluded to the Financial Times that the additional costs of doing business in France related to social programs and benefits were making it difficult to maintain a competitive industry in the country.

“We are doing our best, that’s for sure,” says a Peugeot line manager. “We are really doing our utmost. Beyond the employment costs, we also have a lot of constraints because we don’t make people work under any conditions, unlike some countries. It is a huge constraint, but we have made enormous progress on productivity and costs even while conditions have improved.”

Peugeot’s CEO Phillipe Varin highlighted this issue, telling the FT

in 10 years the hourly cost of a worker has risen 31 per cent in France, compared with just19 per cent in Germany, even though a French worker takes home less pay. Workers at Peugeot’s Slovakia plant cost €10 an hour, compared with €35 in France.

The crux of the argument, explored in the FT article, is that French industry has profited from globalization while the worker has seen their jobs disappear. Peugeot isn’t alone in exporting jobs to low cost countries. Renault came under fire at home for setting up a Dacia plant in Morocoo, where workers are paid roughly 1/7th that of a French employee. TTAC’s initial estimation, that profitable, affordable vehicles couldn’t be made in factories that pay 1,800 euro a month and provide 5 weeks vacation, seems to be the kind of sentiment shared by many observers at Peugeot and outside the auto industry. At some point, a grand bargain between worker benefits and industrial competitiveness will have to be forged. It may not be a zero sum game, but somebody is bound to lose out – and it’s not hard to figure out who.

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31 Comments on “Saddled With Social Costs, French Car Makers Bid Adieu To Domestic Manufacturing...”


  • avatar
    Toad

    I’m not a math major, but “seven times less” is an odd way to compare wages. Does that equal “one seventh” or “about 15 percent” of the French workers wages?

  • avatar
    Remi

    The real issue is that both Renault and Peugeot are competing in the cheap cars segment, they have lost the large (607, Vel Statis, C6) car market and are losing the large/medium (508, C5, Laguna) one as well. They’re basically competing with Fiat now…

    The Germans have high labor costs as well but are doing just fine because either they’re assembling in Eastern Europe or building expensive cars with higher margins (Audi, Mercedes, BMW).

    Labor is only about 15% of the cost of a car, so a 10% difference between two countries is only about 1.5% in the total…

    • 0 avatar
      deanst

      1.5% doesn’t sound like much, until you realize that it is larger than Peugeot’s profit margin last year.

    • 0 avatar
      tonyola

      With the exception of Citroen, the French makers haven’t done well with large or luxury cars since World War II. Every attempt by Renault, Simca/Chrysler/Talbot, or Peugeot has ended up being a flop. Even Citroen has had a hard time in the pricey segment since the CX ended production in 1989.

      The Germans are also doing well because they are big players in the very large American market. The US hasn’t seen a mass-produced French car since Peugeot fizzled out in 1991.

      • 0 avatar

        “With the exception of Citroen”? The C6 (s. pics at http://en.wikipedia.org/wiki/Citro%C3%ABn_C6) was a flop, a last attempt to do it the French way. Not a bad car. But to buy a C6 in Europe today is totally different from buying a DS 21 in the sixties. The competition is better, technically, so to drive a C6 means just to demonstrate that you can can afford to be francophile. I would not want my business to rely on such a customer base.
        You are totally right that the French simply have “surrendered” regarding the US market, a step that per se would not have been wrong, provided that there are other profitable markets. But there are none.
        Renault did better than PSA by establishing a “cheap brand” (Dacia) early enough, that they can sell worldwide in either “emerging” or “declining” markets.

      • 0 avatar
        tonyola

        Did you read my entire post? I also said: “Even Citroen has had a hard time in the pricey segment since the CX ended production in 1989.”

      • 0 avatar
        d002

        Peugeot 504 ? Renault 16 ?

        Hypocrites much ? From the land of Government Motors and Fiat (Chrysler division).

      • 0 avatar
        tonyola

        The Peugeot 504 and Renault 16 were neither large cars or luxury cars. They were popular middle-class family sedans one step above small cars like the Peugeot 204/304 and Renault 10/12. I’m talking about attempts at real luxury cars like the Renault 20/30 and 25, the Peugeot 604/605/607, and the Citroen DS/CX/XM.

        Uninformed judgement much?

      • 0 avatar
        JEM

        The 504 was definitely a large car by French standards of the time, in the Volvo 140 segment. Its replacement, the 505, was I think even a bit larger, as big as the E12/E28 5-series. The big old Pugs were exceptionally tough cars, their FWD replacements too fragile to sell in the world markets Peugeot had once dominated.

        Note that it’s not just the French makers that have had trouble in the executive-car space.

        The Omega was a substantial success for GM but for whatever reason they elected not to replace it.

        Likewise the Scorpio/Granada at Ford, they dithered around for a decade getting its replacement ready, then having scooped up Jaguar and Volvo along the way decided not to replace it after all.

        The Jaguar X-type was the result of a fundamentally failed product-management process, a technical success but the wrong product for the segment. I always found it interesting that once the aluminum XJ was introduced you could buy a 3-liter X-type, a 3-liter S-type, or a 3-liter XJ and they were all the same weight.

        One thing most of the failures have in common is that they’re front-drive. Pretty much the only automaker that’s managed to sell FWD into the above-Mondeo exec class has been Audi, and only at the bottom end of their ranges.

        In the US things are a tad different, Toyota sells lots of ES350s for some reason (they’re utterly hateful things to drive, completely uninhabitable for anyone over 5’9″) though GM and Ford virtually destroyed their luxury brands by trying to peddle big FWD bedpans for two decades. The Toyota Avalon now pretty much owns the Dependswagen segment that was once Buick’s.

        GM’s admitted failure and has made a valiant effort to reconstitute Cadillac; Ford hobbled the Lincoln LS to avoid competing with Jag and subsequent Lincoln products have been crap.

  • avatar
    kitzler

    You are so right, the French with their unappealing designs for large cars like Vel Satis, are doomed to producing small cheap cars. The Germans do outsource too, for instance I just bought an Audi, in Ingolstad hergestellt, but the engine was produced in Hungary.

    Like the wise man once said, you need to move up the supply chain with higher value products if you are ever going to survive, I don’t think the French will survive for long, look at the Brits, the Japanese produce in the UK, how do they do it!

  • avatar
    marjanmm

    This must be one of the more interesting ironies of our times. West won the cold war which caused the competitiveness of the world to rise so much that the industries and jobs drained out to the East and thus made the lives of the middle and lower classes in the west more difficult.

    • 0 avatar
      jjster6

      Please back that up with data! In theory, a person’s standard of living is based on what they can produce and consume, not how much money they have. Money is just dirty bits of paper. If we have cars that cost less to produce, then we have more we can consume. Sure some people get hurt, like those producing cars at a high cost, but many others benefit. Blanket statements like “made the lives of the middle and lower classes in the west more difficult” may sound good to a left-wing audience, but are based in as much fact as the Earth is flat because I can’t see it curve.

      • 0 avatar
        onyxtape

        Wage differentials aside, the real problem is that we’re just too darn productive. Computers and automation have made a lot of labor unnecessary. I remember reading that a former Sony CD-stamping plant in New Jersey was responsible for a majority of the world’s CD production – and it employed all of 200-300 people. Or that the factory which produces a Toyota Camry can churn one out every 20 hours.

        In the current capitalist system as we know it, each person must literally work for food. But if increased productivity in manufacturing products and services far outstrip the total demand for products and services, what will these people do? This is why the US’s 10% unemployment will not dip significantly lower for the foreseeable future, and it wouldn’t surprise me if in my lifetime where we see a significant chunk of what we now call the middle and lower classes receive a minimum living standard allowance because of this economic shift.

      • 0 avatar
        icemilkcoffee

        “made the lives of the middle and lower classes in the west more difficult”

        This statement is in fact true. The median inflation-adjusted wage of a full-time male worker has not changed since around 1969, despite huge productivity growth and GDP growth for the United States since that time. Also a lot fewer men are working full time. Today, only 66 percent of American prime-aged men hold full-time jobs, down from 80 percent in 1970.

        If you include both full time and part time workers, the median wage of a male worker has gone DOWN 28% from 1969 to 2009.

        http://www.brookings.edu/opinions/2011/0304_jobs_greenstone_looney.aspx

  • avatar
    VanillaDude

    The Euro is teetering towards a fiscal abyss, propped up by the Germans who understand that without the Euro, their export driven economy would fall into a recession. As more countries threaten to go belly up, (today we can add Portugal to the list), the more difficult it is to justify to Germans why they should bankroll lesser productive countries.

    France was supposed to be a fiscal partner with Germany regarding the Euro, but even the French are not doing well enough to help anymore. Everyone is running out of money, credit, ink and means to delay the day the numbers finally come due.

    We can talk about subjective things like better product lines with higher profit margins, but let’s face it – the math has to be done and that math is going to show us that the 21st Century is going to end the way things were done in the 20th Century.

    It isn’t just that Moroccans can assemble a vehicle cheaper than can the French, it is that there are fewer people needed to do the assembling. Twenty years of Advanced Manufacturing processes have not only demonstrated how to do a better quality job, it also has shown how to do a better quality job with a lot fewer people. Just as we no longer needed half the US population in agriculture in 1920, we no longer need half the US population in industry in 2020.

    We will be bidding adieu to many more 20th Century icons during our lifetime and welcoming new ones as soon as we allow them to be freely created.

    • 0 avatar

      And therein lies the rub, Mr. Dude – “FREELY (emphasis mine) created”.

      They must be allowed to be freely created but command-and-control economies stifle creativity.

      • 0 avatar
        Ubermensch

        By “freely” created, you of course mean the risk and funding is public and the profits become private. Pretty much like all industry in western state capitalist economies. Please stop with the tiresome worship of the holy “free market” that doesn’t and can’t exist except in the wet dreams of Randroids.

  • avatar
    tikki50

    35 euros an hour, WHAT! I think that says enough on its own, LOL.

    • 0 avatar
      Remi

      That of course includes benefits, pensions, healthcare coverage and so on… It’s not what they get paid. Their salary (before taxes!) is about 30K euros/year which isn’t anything to write home about.

  • avatar
    icemilkcoffee

    1800 euros is not even all that much. That’s not even $30k a year in USD. Do we all have to work for $10k a year in order to compete with these low wage developing countries now? Is this what the grand poobahs have in mind for us?

    And that Moroccan making 1/7th of what a french worker makes- would he ever be able to, in his lifetime, afford one of the Peugeots he is building?

    • 0 avatar
      Dr. Kenneth Noisewater

      1800 euros is not even all that much. That’s not even $30k a year in USD. Do we all have to work for $10k a year in order to compete with these low wage developing countries now? Is this what the grand poobahs have in mind for us?

      Labor, like land or capital, is worth what the market will pay for it. Enlarge the labor pool, and each individual’s labor value goes down. The key is to move yourself into a much smaller/shallower pool that can command higher wages and provide more value.

      Otherwise, you can reduce the labor pool, either artificially (tariffs and protectionism) or naturally (war). That’s where the US ‘golden age of labor’ in the 1950s and early ’60s came from: the rest of the world’s labor was either dead or incapacitated (Europe, Japan) or held off the world market by socialism or communism (Soviet Union, China, India, much of South America).

      • 0 avatar
        icemilkcoffee

        “The key is to move yourself into a much smaller/shallower pool that can command higher wages and provide more value.”

        And what area would that be? Even legal work and medical work like x-ray reading, are already getting outsourced. Even if you found a special niche that is outsourcing proof- exactly how many other americans could follow in your footsteps?

    • 0 avatar
      Chicago Dude

      A Frenchman earning 1800 euros per month does not have to worry about the cost of healthcare and does not have to worry about saving money for retirement. He also lives a much more relaxed lifestyle and has much more free time.

      It’s a choice. They chose their system and we chose ours.

      • 0 avatar
        CJinSD

        He might not be worried about healthcare or retirement, but chances are his pension and healthcare provisions won’t be worth anything because of his belief system. Young French people don’t have any job prospects because of the cradle-to-grave lie, so they won’t be picking up the costs when today’s entitled retire.

      • 0 avatar
        Yeah_right

        As the the old knight in the Indiana Jones movie said, “they choose poorly.” The French government has made bennies into such a sweet ride and made have it so utterly impossible to fire even the worst employee that no sensible employer will hire a young Frenchman.

    • 0 avatar
      Ubermensch

      “Do we all have to work for $10k a year in order to compete with these low wage developing countries now? Is this what the grand poobahs have in mind for us?”

      Yes. The goal of globalization policies is to drive down wages in the west.

  • avatar
    BrewCity

    The Economist ran an article last week about how out-of-step France is when compared to neighboring European nations in terms of social costs.

    France provides public services to it’s citizens on a level far beyond other nations — 90 people per 1,000 work in the public services sector in France. In Germany, it’s 50 people per 1,000.

    The benefits and safety nets offered to French citizens must be nice, but the tax burden must be enormous. It seems a little out of balance.

  • avatar
    Felix Hoenikker

    The social welfare programs in Western Europe also suck a lot of tax money from industry. The German automakers have done OK because they can export some of those costs to the US in the form of high priced luxury cars. The French have not been able to do this.
    A healthy auto industry should be able to produce cars in the conuntry they are sold at prices the average citizen can afford as Henry Ford did. Otherwise, the industry is on a slipper slope.

  • avatar
    Speed3

    Don’t forget that a lot of developing countries (Brazil, India, middle east etc) are also buying luxury cars. Citreons? Not so much.

  • avatar
    Sketch

    So unless we have a very short memory span, it doesn’t sound like auto manufacturing is entirely leaving France…

    http://www.thetruthaboutcars.com/2012/04/first-hybrid-yaris-rolls-off-line-in-france/

  • avatar
    obruni

    €1800 a month is nothing in France. thats about €13 an hour

    one can forget about supporting a family on that in most of the country….and two of their four plants are in the suburbs of Paris!


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