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AB 2000 studies

Alain Boublil Blog


renault, Alstom and the French industry

For about fifteen years, France is de-industrializing itself. Political leaders, one after each other, have tried to remedy to that through the research tax credit, the CICE and this year, at last, the financing by the State of a share of the social charges. The corporate tax, which brought back around 40 billion in 2011, fell around 25 billion in 2018. This policy has heavily weighted on public finances because it did not only provide a benefit to industry in favor of which it was conceived to improve its competitiveness. Large retail companies and banks also profited from it. To that, it can be added optimization and even fraud fiscal practices. Europe not more than the French State have found the way to put an end to them, even if consumers have also a role to play. You cannot occupy roundabouts during a whole day and then go to have a coffee or a hamburger at tax evasion champions.

But that policy did not deliver expected results. Industrial production had a slow growth and did not really rebound after the 2007-2008 crisis. 800 000 jobs disappeared during the last fifteen years. Manufactured goods trade deficit continuously increased since 2005 when countries having very diverse profiles like Switzerland or Italy, not to quote Germany, are accumulating high surplus. So French people are suffering a triple penalty: lasting unemployment, purchasing power fall and tax increases. Only high fortunes and top revenues have been saved, when they have not been favored. The major social crisis which is hurting France is the consequence of that. It has been aggravated by the highly shared feeling that the true persons responsible of this situation are these who took the highest advantage of it, the famous “globalized elites” who are controlling the “system”. What happened at Renault and at Alstom are giving a good illustration of the phenomenon.

The Carlos Ghosn imprisonment in Japan and his resignation have given the opportunity to draw a flattering portrait of his action and he has even been qualified as a French industry icon. The treatment imposed by Japanese justice is deeply shocking and reveals that the country has a culture and practices which do not correspond to our values. But media have been more fascinated by the circumstances of his fall than by the evaluation of his action. He has put Nissan back on its feet and has been poorly rewarded in accordance with the well established principle which explains that those you have done a favor never forgive you. To the opposite, his action at Renault has been harmful for the company as for the whole French car industry. Until 2005, more than 3 million cars were produced in France. In 2017, national production fell to 1.68 million. Almost three quarters of that fall was the consequence of Renault de-localizations, as in Turkey where the Clio is assembled. The sector has lost near to 80 000 jobs. In 2005 the foreign trade surplus of the car industry, including equipment suppliers, was over-passing 10 billion euro. In 2018, it will carry a deficit superior to 12 billion.

Did that strategy bring a profit to Renault? No. Its market capitalization was 17 billion when Carlos Ghosn resigned. Volkswagen, despite the rigged engines scandal, has a 70 billion value. But if we take out Nissan 43% stake from Renault value, the true market value of Renault falls around 4 billion, i.e. five times less than PSA. Renault made the wrong choices. Its alliance with Nissan has turn it down from the three most important markets in the world: Japan, United States and especially China where the Japanese group massively invested in. During that time, Renault chose Latin America with all the well-known risks and…Russia. The company hasn’t been able to anticipate the customer’s choices in favor of SUV, to the opposite of Nissan with its Qashgai and of Peugeot. The group launched very early an electric vehicle, the Zoe, but despite massive public subventions, it did not attract the interest of more than some dozens of thousands clients on the two millions France car market. The remuneration offered to its chairman by the board where the State has administrators has been, at the end, inversely proportional to his achievements. We won’t be surprised by the gap which has been created between people and his “elites”.

Alstom case is not very different. It used to be until the middle of the Nineties a jewel in the French industry. The behavior of its shareholder, Alcatel-Alsthom, which listed it after having pumped into its cash, and several strategic mistakes have created the conditions which have lead to the company virtually disappearance. There was first the breaking-off of its license agreement with General Electric covering the production of gas-turbines, an activity where Alstom had never been successful. To cope with that, it acquired ABB corresponding business. The deal was poorly negotiated and lead to a near bankruptcy. It was saved by the State which got a participation in the capital. The group situation being restored, State participation was sold to Bouygues in 2006. Bouygues CFO was, at that time Olivier Poupart-Lafarge. Alstom CFO, since 2004 was nobody else than his son, Henri Poupart-Lafarge.

Eight years later, Alstom share value was dragging itself on the stock market. Alstom executives understood, at last, that they had little chance to make their gas and coal turbine activity recovering. General Electric could be interested because the American company wanted to develop itself in Europe. A transfer of these activities was imaginable. But both executives and shareholders were greedier. To obtain a maximum of cash, they linked that transfer to the sale of the whole energy business. At the beginning, GE was not interested because it had exited from these businesses (hydraulic) or was developing different technologies (nuclear, networks, renewable). Alstom CEO, Patrick Kron, was successful in convincing the State that these activities could not be split, despite the fact that, on a technical point, they had nothing in common, and that they had always been split. He obtained, from GE, to take the whole package and to pay near 10 billion.

The American company, going today through difficulties, is quite regretting to have accepted that deal. But the victims will be the employees. Jobs reductions have just been announced at Belfort when a commitment had been undertaken in 2016 to create a thousand jobs in France. Political leaders at that time are carrying today the responsibility of the breaking up of an industrial jewel whose only beneficiaries, at the end, would have been the shareholders, at the top of them, Bouygues, and Alstom CEO who left his job, once the deal concluded, with a substantial bonus.

The case took even a conspiracy dimension. Alstom had, at that time, to cope with a legal action in the U.S. regarding corruption. The company negotiated and paid a fine to settle the legal actions. That was enough to substantiate the thesis according to which American authorities were acting in conjunction with GE executives to lay their hands on a French jewel. But that doesn’t make sense because, at the origin, GE was only interested in buying the turbine business and did not want to make such a deal which will reveal itself ruinous. It is difficult to imagine the American administration put the pressure on GE executives with the risk to weaken the company for the sole profit of Alstom shareholders and top managers.

That sale was supposed to allow the company, according to its executives, to have enough financial resources to guarantee the future of the transport business. We learnt, shortly after, that it was also going to be sold and put under the control of Siemens, its eternal competitor in Europe and around the world. The TGV was going to become German when the country had never been able to build a high speed train network, comparable to the French one. The height of absurdity is that the given reason, the threat of a Chinese competitor, has zero credibility because this one has never shown any interest in the European market, too busy it is by the huge projects in its country and their extension in neighboring countries under the New Silk Roads program. Fortunately, Brussels, in presence of the creation of such a monopole is hesitating to give its approval. Let’s hope that, for one time, its decision will allow to strengthen our industry, and in that case, to save it.

Renault and Alstom are two examples, among many others, of the weakening of the French industry. The behavior of their executives and the passivity, and even the indulgence, of the administration are in question. But this weakening has been attributed to employees, too costly and to pensioners, having too many privileges. The State, atop of that, has asked them to pay, through taxes or through the freeze of the level of pensions, the cost of measures which were supposed to remedy to that weakening but which was not tackling its causes. The rejection of the elites and of the system France is confronted with is not at all surprising.           




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