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Free market should show EU auto industry some solidarity

Solidarity is in short supply when it is most needed, and a lack of consensus is paralysing a potential EU-wide co-ordinated response to falling car sales in Europe that have plunged to levels last seen in 1995. Sergio Marchionne, ACEA President and Fiat Chief Executive, has long tried to drum up support for common, swift … Continued

Solidarity is in short supply when it is most needed, and a lack of consensus is paralysing a potential EU-wide co-ordinated response to falling car sales in Europe that have plunged to levels last seen in 1995.

Sergio Marchionne, ACEA President and Fiat Chief Executive, has long tried to drum up support for common, swift action to address the chronic overcapacity that beleaguers the industry. However, an agreement has never been reached due to opposition from German OEMs, who are evidently in better shape than their Italian and French counterparts.

Free-market advocates recently cringed in horror when the French government came forward with a €7bn (US$9.3bn) bailout for Banque PSA Finance, the financial arm of PSA Peugeot Citroen. No doubt, President Hollande has a vested interest in rescuing PSA and fighting the decision to shut a major factory at Aulnay-sous-Bois, near Paris, a district where he won 62.5% of the electoral vote.

Free-market advocates recently cringed in horror when the French government came forward with a €7bn (US$9.3bn) bailout for Banque PSA Finance, the financial arm of PSA Peugeot Citroen

Hollande’s decision carries substantial risks of distorting competition and smashing the unity of the single market. The rescue deal will have to be examined by EU competition authorities, which should report within two months. In the meantime, the French government could acquire a stake in Peugeot if PSA Peugeot Citroen’s financial situation worsens.

It is easy to label the Socialist President as the sole culprit. Last October, Marchionne warned that if the French government were to help one specific OEM, it would breach European treaty rules.

But the European Commission is not completely exculpable here: in the face of EU inaction, the French government has been forced to choose the lesser of two evils by rescuing a company that employs 100,000 workers in France and haemorrhages to the tune of €200m a month.

The truth is that the automotive industry represents a vital national interest in France, where it accounts for 10% of the workforce; the same is true of the automotive industry in Germany. Ironically, the State of Lower Saxony, which is the second largest shareholder in Volkswagen, has been one of the most vocal opponents of the Banque PSA Finance bailout, saying it represents ’state aid’.

There is no miracle cure, and the restructuring process will be painful. Jobs will be lost and factories will have to be closed as European OEMs restructure in a market that has shrunk by 25% in five years

The optimal solution for the automotive industry remains a co-ordinated restructuring at EU level to solve the overcapacity problem and preserve the single market. The European Union could, for example, create a Europe-wide equivalent of France’s Fonds Stratégique d’Investissement (FSI) and the Fonds de Modernisation des Equipementiers Automobiles (FMEA) to strengthen the industry and encourage pan-European consolidation.

There is no miracle cure, and the restructuring process will be painful. Jobs will be lost and factories will have to be closed as European OEMs restructure in a market that has shrunk by 25% in five years. But co-ordinated political intervention is necessary and desirable to mitigate side effects and get the industry back on its feet.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Riccardo Ghia is EMEA industrial correspondent at Mergermarket.

The Automotive World Comment column is open to automotive industry decision makers and influencers. If you would like to contribute a Comment article, please contact editorial@automotiveworld.com

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