Renault: Beware of French Governments Bearing Gifts

Let’s say you have one of the most unproductive car factories in the world. Car research firm CSM Worldwide says it’ll run at 37 percent this year and possibly 31 percent next year. So what do you do? That’s right, you crank up production. This story just goes to show you how a bailout can be more of a hindrance than a help. Renault has no choice but to keep production at their plant in Sandouville running despite it failing catastrophically. This is because Renault accepted a €3B bailout loan from the French government. A loan which came with a caveat, “Keep production open at French factories!” And now . . .

Because of the worldwide recession and the push towards more fuel efficient cars, vehicles like the Renault Laguna and the Vel Satis (both of which are made at Renault’s plant at Sandouville) are going to be more redundant (unlike the factory staff). Which means Renault will have an excess of stock, which won’t do their finances any favours. Renault management are trying their best to entice staff to leave with generous rendundancy packages or offering them to work half time and receive 70 percent of their wages. But it just isn’t enough.

Whilst the government loans will help Renault in the short term, it won’t do them any good in the long run. After all, how does one cut costs, without cutting staff or closing factories? Cheaper parts on cars? As if Renault’s cars weren’t unreliable enough. Now, if Renault hand’t taken the loans, they would have been free to close the Sandouville plant, transfer what little production was left to a lower cost factory and make meaningful savings towards the long term life of the company. That kind of thinking has a name, what was it . . . ? Oh yeah, “free market economics.”