French Socialist Nightmare: 'The State Cannot Do Everything'

Wolf Richter's picture

Wolf Richter

The preannouncement came Thursday evening: PSA Peugeot Citroën, France’s largest automaker, would have a write-down of €4.7 billion. On top of a hefty operating loss. It would be colossal. An all-time record. Rumors spread immediately that PSA would need a bailout. The second in four months.

PSA passenger car sales in France dropped nearly 17% in 2012 from an already awful 2011. In January they dropped another 16.7%. Sales for all automakers dropped 15%, and PSA’s market share had eroded further. Kia-Hyundai sales jumped 21.2%, the only major automaker with gains. Even Volkswagen Group got clobbered: down 23.9%. PSA isn’t internationally diversified enough. It doesn’t have much in China and nothing in the US, the largest markets in the world, both growing. It’s mired in Europe where auto sales have ground to a halt. It’s bleeding €200 million a month. It’s trying to lay off 8,000 workers and shutter its plant in Aulnay-sous-Bois. And its Banque PSA Finance was bailed out last October with €7 billion in taxpayer money.

The government was so worried that it was actively studying a bailout, sources told the Liberation after the losses were announced. It was just hypothetical. “But if a capital infusion would become inevitable, the state could participate,” the source said. Instantly, a cacophony of discord erupted—within the Socialist government.

Another chapter in the saga of the deindustrialization of France—a process that has afflicted France, like other developed nations, for decades as manufacturing has wandered off to cheaper countries. But now there’s a near national consensus: the state needs to step in and stop it, according to a poll that CSA conducted for Les Echos and the Institut Montaigne....

The same Institut Montaigne that had shocked the establishment last April with a new French Paradox: employees in France were more dissatisfied with their jobs and more stressed at work than their counterparts in the rest of Europe—despite highly protective, “dense and complex” labor laws that allowed the French to work fewer hours, work less often over the weekend, and have a “less sustained pace of work.” And it dared to wonder if the sacrosanct labor laws were still protective, or if they’d become counterproductive even for employees. Gasps all around.

Deindustrialization has been on the front burner since the presidential campaign last year. But now, in the poll, it came down to a single question: Is the decline in manufacturing a phenomenon that can be reversed? The resounding response spread across all professional levels, all ages, and the entire political spectrum—78% of the respondents said yes.

The French expect the government to do “the maximum” to prevent plant closures, explained Jérôme Sainte-Marie, director of CSA’s political opinion division—something that those on the extreme right and left had been clamoring for all along. Now they “find themselves comforted” by the survey results, he said. And it puts the government in a quandary.

So far, it has shied away from nationalizing troubled plants. A risky path: the phrase by Lionel Jospin that “the state cannot do everything” was “absolutely impossible to maintain,” Sainte-Marie said. “Public opinion doesn’t want to hear it.”

He was referring to a Socialists nightmare. Jospin, Socialist Prime Minister from 1997 to 2002, had admitted that he could not prevent layoffs at a Michelin factory, that the state couldn’t do everything (“l’État ne peut pas tout”). A phrase—or a concept, rather—according to some political soothsayers, that contributed to his humiliating defeat in the 2002 presidential election. He was trounced in the first round by right-wing Jean-Marie Le Pen, which forced the left to vote for Jacques Chirac in the second round just to keep the unpalatable Le Pen out. An unforgettable horror story still for the Socialists.

For a Socialist government to admit again that the state couldn’t do everything, that some layoffs and plant closures would be allowed, was fraught with perils. During the presidential campaign, they’d promised the “reindustrialization” of France, and “the French took them by their word,” said Sainte-Marie.

So what to do about PSA?

“This company cannot, must not disappear,” said Budget Minister Jérôme Cahuzac Friday morning during an interview. “We have to do what we have to do so that it survives.” He’d already worked out the details: the bailout money would come from the state-owned Strategic Investment Fund (FSI).

Minutes later, Finance Minister Pierre Moscovici disagreed: “Jerome Cahuzac talked about a theoretical scenario and the tools available to the state,” he said. But “such a state bailout is not being considered, is not necessary, and would not add anything.” Sources in his entourage agreed, “A capital infusion by the state is not on the agenda.”

By midday, Prime Minister Jean-Marc Ayrault jumped into the fray. A bailout was not “on the agenda,” he echoed. PSA hadn’t requested it. Though there was “a tool, the FSI,” that could do it. But “this question hasn’t been raised today. Therefore, there is no question.” But if necessary, he grumbled, PSA would have to “be saved at all costs.”

And so continues the saga of the decline of the private sector à la Française. Tuesday morning, the 168 employees of automotive component maker DMI in Vaux, a tiny town near Montluçon in the Department of Allier, smack-dab in the middle of France, rigged about ten gas cylinders throughout the factory they’d been occupying and threatened to blow it up—unless their demands were met. Read.... French Workers Threaten To Blow Up Their Factory.

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nmewn's picture

You've got to get with the current modern meme around here Freddie, there are no "ism's" or "ist's", there is no blue vs red, no libertarian vs "progressive", no statists vs liberty, no labels!

Shit just happens out of nowhere, it's all just an unfortunate circumstance, a confluence of bad energy or sumpin ;-)

Spigot's picture

Word usage is an important social indicator of what allowed discussion if your are hearing that word, I'm sure there is serious concern.

besnook's picture

war in mali is not enough. senegal and algeria and morocco and maybe even quebec need to be engaged.

andrewp111's picture

Yes. Quebec can secede and join the EU. Then the EU can place nuclear weapons there, so the Canadian Civil War becomes a real war.

q99x2's picture

State can't do anything except rob whoever it represents.

Control must be localized and the rest run by open source software. No time left to be screwing around with people's wills running things.

Time to get real.

HoaX's picture

hmhm..Why does this remind me of GM?


Hail Spode's picture

"The State Cannot Do Everything".

But I thought that was the plan?  

Better not let Resident Obama hear them say that or they could get classified as domestic terrorists *because we own the world right?* .     They better stow that seditious talk or its drone strike time.  With the money we now save from dispensing with trials we can buy more drones!

mightycluck's picture

It worked so well for Argentina and Venezuela, why not France? Or the USA? This guy has it right!

Manthong's picture

I don’t know what their problem is..

I mean, shipping manufacturing to Asia, not working all that much or hard and relying on the government for your personal and financial security seems like the perfect socialist solution to the problems of life.

Besides, the government facilitated the influx of all those Africans and Middle Easterners who are there to step up to the plate for France, share their value system and help make things right.

falak pema's picture

the PSA model is not in phase with globalism; simple as that. In a shrinking car market there will be losers. Government bail outs are just bandages for SOCIAL and political reasons; not for long term structural ones.

These wll play out as the face of euro industry shrinks; until a new paradigm appears. Fasten seat belts! 

Motorhead's picture

Frédéric Bastiat is rolling in his grave.

Clowns on Acid's picture

France needs Krugman to be saved. According to Krugman's theory all the French have to do is subsidize the muszzies to burn only Peugeots and then demand would rise and the workers could store the gas canisters be used only when demand drops again.

Bubuzinho's picture

That's worth another Nobel!!!

Spigot's picture

I think we can arrange a swap, certainly they have some wine to trade for Krugman, though they may offer only their lowest grade.

dunce's picture

I propose offering them Krugman, Corzine, and the entire obama administration for a bottle of cheap wine.

dracos_ghost's picture

Boxed wine. Bottles are worth too much.

Colonel Klink's picture

There are some cunts even the French don't want.

Spigot's picture

Promise to pay would be good enough for me

Parrotile's picture

They'd also have to change the Insurance regulations to mandate replacement purchase of "Like for Like", otherwise the above data suggests that the only beneficiaries will be Kia-Hyundai!

If PSA Peugeot-Citroen want to compete (with the already more reliable and economical Hyundai or Kia models), maybe a first step would be to match their far better warranties - PSA Group - 3 years; Kia-Hyundai group EIGHT Years.

Then PSA Group can make a start on matching other ownership costs - such as routine servicing, and OEM frequent-replacement Parts pricing.

Otherwise people will continue to vote with their pocket-books. When times are hard, reliability and ownership costs will always trump Marque allegiances (even for the very Nationalistic French!!)

DoChenRollingBearing's picture

There are a LOT more Hyundais and Kias in Peru than Peugeots and Citroens.

Another great article, Wolf!

Colonel Klink's picture

Does anyone find irony in the dish "French Toast"?  I've heard it's a dish best served cold.  Kinda like revenge.


No one?  Ok they give up!  ZING!

mightycluck's picture

Greet one!!!!!!!!!!!!!!!!!!!!!!

Nassim's picture

I worked as an IT consultant with PSA in the late 1980's. PSA was my client. It was a different place then. The share price could only go up and the cars were very popular.

Joebloinvestor's picture

As soon as the car sales increase, they will set a new tax upon the owners.


As i said before, if the MENTALIST couldn't give Citroen a boost, nothing can.

Ratscam's picture

Peugeot still has the biggest foreign share of the car market in Iran and from one day to another, Peugeot management decided not to sell to its second! biggest market, Iran with its 80 million people growing strongly. No wonder their revenues are dropping like dead flies. Stupid fucking management.
Easy out for Peugeot would be to change managment that stands up against US imperialists and allows exports to any country. FUBAR.

goldfish1's picture


A deadly decision was made in late 1999 that assured the demise of the nation, questioned by few, never having sat well with those in possession of an active economic brain stem. The discharge of the bulk of US factories to Asia, mostly to China, sent the legitimate income producing capability away, only to be replaced to a deeper dependence upon asset inflation. The resulting deficits for the USGovt cannot even remotely be repaid, nor even financed. Creditors have fled. The forced endless 0% rate is kept in place to enable debt service itself. Enter systemic failure from an political and fiscal standpoint.