Nationalizing Companies Is Part Of The French DNA

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

In France, socialism isn’t a political movement that swept the elections this year, and it isn’t an economic philosophy that moved once again to the forefront, but it’s part of the DNA of much of the population. And it produces classic knee-jerk reactions to the current economic morass—such as the nationalization of tottering automaker Peugeot.

French automakers are in a death spiral, within a market that is morose. In October, auto sales fell 7.8% from prior year, and a breath-taking 15.8% once the two extra selling days this October (23 instead 21) are taken into account. Year to date, sales are down 13.3%.

PSA Peugeot Citroën dropped 5% for the month and 17.2% for the year. Its captive finance subsidiary, Banque PSA Finance, was bailed out by the taxpayer last week to the tune of €5 to €7 billion. More bailouts are on the horizon. Layoffs loom, but political resistance is enormous, and it might be impossible to shrink PSA’s capacity down to reality.

Renault crashed. October sales were down a catastrophic 26.4%, for a decline of 20.5% so far this year. All hopes rest on the arrival of its miracle car, the new Clio 4, which would not only stimulate Renault’s sales but goose the entire market. Good luck. In a few days, the company will start discussions with unions on how to improve its “competitiveness”—and everyone knows what that means for the hapless workers.

The killer? In October, the French brands together plunged 15.2% ... but foreign brands rose 2.5%. For the year, the market is down 13.3%, a horrid figure, but PSA is down 17.2% and Renault 20.5%. They’re getting killed at home! You can blame the decomposing market on the government or on the debt crisis or on the weather, but if your market share is plummeting, you can only blame yourself—and if you don’t fix the problem, you become irrelevant.

Hence the ingenious idea to poll the French on what they thought about nationalizing Peugeot. Not bailing it out. Not resurrecting it from a pre-packaged bankruptcy, as the US had done with GM. But nationalizing it upfront. It would turn the manufacturer into a political entity. Layoffs would become impossible. As would success. And the French DNA spoke:

Overall, 56.7% were either for nationalizing it or didn’t care (32.2% and 24.5%). Only 43.3% were against it. Among workers, 64.8% were either for it or didn’t care (51% in favor, 13.8% shrugging it off). Even among managers and professionals, 33.7% were for it, though 58% opposed it, and only 8.2% didn’t know.

While the government is grappling with the crisis that has washed over France [Desperate French Government Threatens To “Requisition” Vacant Buildings], almost a third of the population sees nationalization as a solution, and a quarter of the population doesn’t mind.

If it weren’t for EU rules that pried open markets, carved up national monopolies, and introduced competition, many of the largest French corporations would still be owned by the state. Yet, lots of vestiges remain—in a country where the central government’s big footprint amounts to 56.3% of GDP (2013 budget).

Air France, for example, was “privatized,” but even after its merger with KLM, the government still owns 18.6% of the group. Renault was privatized in 1996. Crédit Lyonnais, once the largest bank in France, was majority owned by the state when it almost went bankrupt in 1993; it was acquired by Crédit Agricole in 2003. EDF is still a state-owned mega utility that owns, among other things, all of France’s 58 active nuclear reactors. Any suggestion by intrepid politicians of taking some baby steps towards privatizing it can trigger strikes, and sometimes a few cables mysteriously get cut. You don’t joke about privatizing EDF.

France Telecom was privatized in January 1998 under Socialist Prime Minister Lionel Jospin. Resistance was huge, and only a Socialist could overcome it. But then came the stock offering. I was living in France at the time. It was one heck of a hoopla. Shares were hyped for months. Everybody wanted a piece of the pie. It was the dot-com bubble, even in France. The stock soared. In March 2000, it hit €219 a share, and people felt rich and smart. It now trades for around €11. Employee suicides have become a problem. And the government still owns 27% of it ... and names the CEO. Because it’s in the French DNA.

But, good grief, I shouldn’t nag. In my beloved California, politicians tax like the French, Chriss Street writes, though the state, like France, is already suffering from wealth and business flight. And now Governor Brown is threatening with a doomsday scenario to raise taxes again. Read.... California’s Brilliant Political Shake-Down Move.

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