French president says Peugeot layoffs are unacceptable

[PanzerJaeger]

Link.

President Francois Hollande on Saturday denounced a plan by carmaker PSA Peugeot-Citroen to cut 8,000 jobs as unacceptable and said it must be renegotiated.

The struggling French carmaker announced the cutbacks Thursday, along with its intention to close a major factory north of Paris. Employees staged a protest the same day, and unions are calling for more.

In his Bastille Day interview on French television, Hollande said the plan was a "shock" for workers, their families and their communities.

He told two interviewers from the major television networks TF1 and France-2 that the "plan is not acceptable as it stands and therefore it will not be accepted."

Hollande, who took office in May, said the government wants an expert to assess Peugeot's finances and make recommendations for the company. He added that the government would soon unveil a plan for the car industry, including incentives to buy French-made cars.

Hollande campaigned for the presidency on a promise to "re-industrialize" France, reinvigorate its manufacturing sector and prevent jobs from going to Asia. Sorting out France's car industry may be his first big test on that front.

Peugeot-Citroen, like its peers, is struggling, warning that it faces a first-half loss of 700 million euros ($850 million) this year. The company wants to save 1 billion euros as it tries to compete in Europe's stagnant car market. It is suffering particularly amid a slump in sales in the recession-hit south of Europe, and saw sales plunge 20% in Europe in the first quarter.

But Hollande wouldn't let the wider European economy take all of the blame for Peugeot's troubles. He said the company shares responsibility and criticized its management for holding back the cost-cutting plan until after he took office, saying that the delay amounted to a lie.

During the campaign, French media reported that advisers for then-President Nicolas Sarkozy, who ran against Hollande, were pressing company executives to avoid announcing big layoffs.

Peugeot-Citroen Chairman Philippe Varin acknowledged on Friday that the decision had been made earlier this year. But he said the announcement was put off because the company didn't want it to be an issue during the election campaign.

How is a business supposed to operate in this environment, much less implement a turnaround plan? Does Hollande's statement have any teeth?

[Papewaio]

The car industries are happy to get tax breaks and government grants. These sometimes come with strings attached.

But ultimately if they want to decide the government should be he majority shareholder.

[PanzerJaeger]

The car industries are happy to get tax teams and go government grants. These sometimes come with strings attached.

But ultimately if they want to decide the government should be he majority shareholder.

Well, it is more like governments force automakers to adhere to wildly optimistic standards and offer subsidies to help make up the R&D deficit it will take to achieve those standards. Sure the automakers could refuse, but that would put them a step behind their competitors and there would not really be much point to it as the standards must be met regardless.

But yeah, my first google search was to see if the French government had a stake in Citreon-Peugeot. That would change everything. As far as I can tell, it does not. Why then, is the French government involved in the staffing decisions of a particular company?

On the one hand, it is perfectly reasonable to step in and make sure that the industries which your people rely on do not take cheap cost-cutting measures that benefit nobody but the CEOs and the bottom line.

Why is that reasonable? The company is owned by and for the benefit of the shareholders.

Hollande is going to have a difficult time reindustrializing France if the government is going to have to sign off on factory relocations and staffing decisions. Why would any company set up shop in such an environment?

[HoreTore]

It makes business sense to realize production assets. Taking money out of the productive sector and placing it in things like real estate is good business.

But it's crap for society and the long term. The most important job for Hollande, and every other european leader, is to swap that around, so that it makes sense to take money out of real estate and put it into production.

[PanzerJaeger]

I think you are confusing regulatory oversight with central planning. It is perfectly reasonable for governments to prevent business practices in general that run contrary to the public good. Interfering in the legitimate strategic decisions of companies on an operational level is a completely different animal, and an unsustainable one at that.

How long do you suppose Peugeot can continue to compete on a global scale with high levels of overcapacity and over staffing?

[Tellos Athenaios]

At present Mr. Hollande represents a major stakeholder in PSA. Also, PSA has a history of being kept afloat by loans from the French government. So uhm, if the French government does not take kindly to the MBA idea of "when in trouble axe your staff, keep your bonus" then that is entirely reasonable. After all, under that plan not only will the French taxpayer be footing the bill to keep PSA alive in loans, but additionally will be made to foot the bill for the lay offs.

[PanzerJaeger]

At present Mr. Hollande represents a major stakeholder in PSA. Also, PSA has a history of being kept afloat by loans from the French government. So uhm, if the French government does not take kindly to the MBA idea of "when in trouble axe your staff, keep your bonus" then that is entirely reasonable. After all, under that plan not only will the French taxpayer be footing the bill to keep PSA alive in loans, but additionally will be made to foot the bill for the lay offs.

Well, I have an MBA so maybe I'm missing the brilliance of running factories at below break-even capacity levels and continuing to pay workers who are no longer needed. I was taught that such things are bad for business. The plan, as I understand it, is not about keeping bonuses. That's just hyperbole. Those bonuses make up a minute fraction of the company's quarterly losses, not to mention the annual figure, and I strongly doubt that anyone at PSA will be getting one this year anyway considering the company's recent performance. In reality, the plan is meant to keep the company viable in the new European market. I do not know how management will be able to do that without realigning production to meet changes in demand and technology.

[Tellos Athenaios]

Well, I have an MBA so maybe I'm missing the brilliance of running factories at below break-even capacity levels and continuing to pay workers who are no longer needed. I was taught that such things are bad for business. The plan, as I understand it, is not about keeping bonuses. That's just hyperbole. Those bonuses make up a minute fraction of the company's quarterly losses, not to mention the annual figure, and I strongly doubt that anyone at PSA will be getting one this year anyway considering the company's recent performance. In reality, the plan is meant to keep the company viable in the new European market. I do not know how management will be able to do that without realigning production to meet changes in demand and technology.

Obviously. I was merely taking a cheap shot at the typical not-so-brilliant MBA solution of "my business is not performing, I know I'll just out source/fire/cut pay until the cost drops" trousering bonuses off the short term gain but rendering a company little but a top heavy management shell devoid of value. In manufacturing that is just as much the death of a business: the issue is nearly always that few people want to buy your stuff let alone pay a premium for it.

The question is not "how can I cut costs" but "how can I turn around my business". Cutting cost on staff might be a stop gap, but it is not a solution -- the only real solution is to make a product that is in demand. In the car industry this always meant upping your technological game, it's always the companies at the forefront of technology which are able to create pocket the desirable mid range products off economies of scale beginning to work their magic on new tech. After all it is technology which drives the car's performance, what you can offer in terms of looks (i.e. how close you can get to design perfection without sacrificing too much elsewhere), and the other features; that in turn makes the product more compelling which drives sales which therefore creates value. By comparison, shaving off the equivalent of a few $M in running costs of a factory does not add up to nearly as much on the bottom line.

Take for example Nokia. Basically, it managed to wreck itself with a single decision to not make product that people want. Nokia was and is famous for razor sharp efficiency in the channel -- they were able to churn out handsets at remarkable volume and low costs, which is what kept them afloat for quite a long time before they jumped the shark/to Windows Phone. They cut costs on staff by cutting R&D, software development and maintenance staff positions, spinning out and selling off of assets, took a cool $1bn from MS right away as part of the deal but even so ran a couple of $bn losses in a few quarters later and it is now truly a burning platform, and sinking further still. All in all it appears now a proper MBA disaster, that one -- give it a few more quarters and it is practically ripe for the hostile takeover.

[Philippus Flavius Homovallumus]

It makes business sense to realize production assets. Taking money out of the productive sector and placing it in things like real estate is good business.

But it's crap for society and the long term. The most important job for Hollande, and every other european leader, is to swap that around, so that it makes sense to take money out of real estate and put it into production.

That depends on your definition of "real estate" it doesn't make sense to sell productive land or tenant housing to buy a factory, it does make sense to buy tenant housing and plow the profit from that into buying a factory.

[HoreTore]

That depends on your definition of "real estate" it doesn't make sense to sell productive land or tenant housing to buy a factory, it does make sense to buy tenant housing and plow the profit from that into buying a factory.

I'm talking about real estate which does not produce anything, of course.

If you have a spare million today, the answer to what to do with it is "buy houses". We need to make it so the answer is "invest in a business".

And buying tenant houses and taking the profits from that into production is what we want. We are not there, however. If you buy tenant houses, the only logical choice for where to put the profits is buying another tenant house.

[Philippus Flavius Homovallumus]

I'm talking about real estate which does not produce anything, of course.

If you have a spare million today, the answer to what to do with it is "buy houses". We need to make it so the answer is "invest in a business".

And buying tenant houses and taking the profits from that into production is what we want. We are not there, however. If you buy tenant houses, the only logical choice for where to put the profits is buying another tenant house.

The obvious conclusion is that corporation and personal taxes are too high and property taxes don't scale properly.

This, in fact, a recognised problem in the UK - Council tax goes up, and up - then it stops.

[HoreTore]

The obvious conclusion is that corporation and personal taxes are too high and property taxes don't scale properly.

This, in fact, a recognised problem in the UK - Council tax goes up, and up - then it stops.

I don't presume to know the inner workings of either the british or french tax system well enough to comment on which specific taxes should be increased or decreased.

On a general note, however, production should be made more profitable, while house ownership should be made less profitable. There's a wealth of possibilities on how to achieve that, like certain tax increases and decreases, government subsidies(for startups), increased house building, etc etc.

One example that would work in Norway, is to tax property(at least second homes+) at the full market value(instead of 20-25%), and use that money to decrease the employment tax.

[lars573]

The problem with that plan is that you effectively make it impossible for city dwellers to live in the city. As you'd make apartment living hugely expensive, which is far more prevalent in say France than Canada or Norway.

[Crazed Rabbit]

I'm talking about real estate which does not produce anything, of course.

If you have a spare million today, the answer to what to do with it is "buy houses". We need to make it so the answer is "invest in a business".

And buying tenant houses and taking the profits from that into production is what we want. We are not there, however. If you buy tenant houses, the only logical choice for where to put the profits is buying another tenant house.

Gee, maybe then you need a President who insists on second guessing every big business decision and then 'not accepting it' if he doesn't like it (how much legal power does the French President have in this regard, anyway?). Maybe you need to get rid of stupid laws that make it hard to fire workers, and oodles of regulations that drastically increase the cost of doing business. Like in Washington state, to start a liquor distillery, you have to rent the commercial property where you'll make the booze and then apply for the permit. Getting the permit takes 1 to 2 years, during which you have no income and have to keep renting the commercial property and paying rent. So the cost can easily be one million dollars.

The government has to accept they can't pick winners and losers in the economy and simply make it easier for everyone to succeed by getting out of the way.

while house ownership should be made less profitable

For crying out loud, why would you want to make something less profitable and lower the GDP?

This sort of meddling is what causes the most issues in the first place. Economically ignorant ministers decide they want to force their whim onto the economy and they end up hampering it.

What companies would be so stupid to invest in France when there's going to be a 90% tax on salaries above 1.25Million and so many business constricting regulations?

Its reasonable because left to their own devices, almost any large corporation will reach a point where the best course of action (in order to generate more money) runs contrary to what is good for the people and the nation.

(Barring regulation on workers rights and the environment and the like) - Who determines what's good for the people and the nation? Some small cadre of government officials deciding among themselves what is good for the nation? This is (supposedly) a free nation, where other people don't get to tell you how to invest because they say your plan isn't 'good for the nation'.

CR

[Kralizec]

I'd like to agree with Panzer, but pragmatically speaking, this is apparently how the French do things and how companies expect things to be done. A couple of years ago Sarkozy supported Renault (I think) with loans under the condition that any lay-offs would occur in other countries, the Czech Republic in particular. That particular condition was, of course, not written on paper so there was some back-and-forth between France and the EU wether this amounted to protectionism. Not sure what happened afterwards though.

[Kralizec]

Workers' Rights, Environmental Protection, Anti-Monopoly measures, and all that good stuff are exactly what I was talking about. But, when you have a company that only exists because the taxpayers (French ones, in this case) have kept it afloat, it makes sense to be outraged when they turn around and fire thousands of taxpayers because the people at the top don't know how to innovate.

I somewhat agree. On a side note, in the Neth's there was some ruckus when banks (ING group, in particular) received bailout money yet continued to pay bonuses to their top management. The fact that some of the people who approved of those bonuses were former Labour politicians didn't help.

However, the financial support that these industries received were due to exceptionally bad circumstances that would have caused otherwise viable companies to collapse. The banks I talked of and Peugot are certainly viable in the long run. If it weren't for the crisis, Peugeot still might have considered to move jobs to cheaper countries because French workers are simply too expensive. It's easy to be indignant about such moves; but it would be better to implement policies and tax regimes that are beneficial and attractive to such companies.

I'm generally sceptical anyway when it comes to France and economic issues vs workers' rights - largely because of Spanish strawberries.

[HoreTore]

The problem with that plan is that you effectively make it impossible for city dwellers to live in the city. As you'd make apartment living hugely expensive, which is far more prevalent in say France than Canada or Norway.

No, it's the other way around.

Home(every kindm, including cabins and the like) ownership is barely taxed at all here. This was one of a dozen measures taken by the government to turn us into a nation of tenants to a nation of home owners - and it did work. The only ones who don't own their homes today are those withiut stable employment, students and those who need a place to live for a short period of time. Heck, I'm still a student working 50% in the public sector, and I own my apartment.

However, I live in the suburbs, not in the city centre. Why? Because the prices there have shot through the roof, and it's completely impossible for young people to buy homes there unless they have parents with money. And getting my apartment would be impossible without my uncle as safety.

The current situation is one where young people are finding it extremely hard to buy homes, and is slowly turning us back into a nation of tenants again. The reason for that is because people who have a little extra money use that money to buy a second home, which they then sublet. This in turn creates a false demand for houses, which causes house prices to skyrocket. The high prices makes it impossible to buy homes, etc etc.

Sure, a higher taxation on homes means an extra expense for home owners. But extra taxation means that the amount of money people can spend on a home is lower, which lowers the price, and that means you have a lower loan. It also reduces the demand for houses as people no longer see home ownership as an investment, thus further lowering the price.

So, as well as being beneficial to the home owner, it is also beneficial for society as a whole, as it keeps the money in the production sector, providing clothes, food, jobs, cars, etc. A win-win for all.

[HoreTore]

For crying out loud, why would you want to make something less profitable and lower the GDP?

This statement has so little thought put into it that I lost the will to comment on your post.

Which isn't all that bad, since the rest of your post seems to argue against points I have never made...

[Papewaio]

If you want to look to apartment housing solutions look at Singapore. After all they are essentially a country of apartment blocks. Very high ownership by owner occupier there.

[Crazed Rabbit]

Workers' Rights, Environmental Protection, Anti-Monopoly measures, and all that good stuff are exactly what I was talking about. But, when you have a company that only exists because the taxpayers (French ones, in this case) have kept it afloat, it makes sense to be outraged when they turn around and fire thousands of taxpayers because the people at the top don't know how to innovate.

Well then the taxpayers shouldn't keep poorly performing companies afloat. But they shouldn't demand nobody gets fired if that's what the company needs to do in order to compete. What if Peugeot's future as a company lies in being a smaller company?

This statement has so little thought put into it that I lost the will to comment on your post.

Which isn't all that bad, since the rest of your post seems to argue against points I have never made...

Meh, I don't worry about someone who doesn't understand economics not talking about economics.

CR

[HoreTore]

Meh, I don't worry about someone who doesn't understand economics not talking about economics.

CR

This is hilarious, coming from someone who believes the financial crisis was caused by too much regulation.

[Fragony]

This is hilarious, coming from someone who believes the financial crisis was caused by too much regulation.

It is, people tend to forget that banks weren't ALLOWED to refuse risky mortages because of the community reinvestment act. All good fun as long as the prices keep rising, but, well.... So yes regulation caused a big part of the crisis.

[Philippus Flavius Homovallumus]

The problem with that plan is that you effectively make it impossible for city dwellers to live in the city. As you'd make apartment living hugely expensive, which is far more prevalent in say France than Canada or Norway.

You mean people who have an apartment they share with their mistress and a house they share with their wife and children?

Don't look at me like that - that's exactly where the practice came from, and everybody should remember that.

If house ownership (property speculation) is more profitable than actually engaging in business then you have a problem. Contrary to popular belief there are enough houses in most Western countries - in a lot of places in the UK whole streets are effectively deserted and turned over to squats. The problem is that these arears are not profitable for business. There are a couple of things you can do about that - in some instances you just need to accept that the area is too far away from the economic centre or other trade links (mill towns in the North of England have this problem) if you aren't going to keep them on life support you might be better served actually allowing the town to wind down, breaking up the deserted sections and turning them back to greenfield. That's a kind of infastructure project nobody bother with - despite the fact that a lot can be recovered from such sites.

Of course, we'd just rather leave all that to rot and build more shoddy cardboard houses on green field and let people winge about how they have no jobs, because that's their "right".

[HoreTore]

If house ownership (property speculation) is more profitable than actually engaging in business then you have a problem.

DING DING DING! Spot on.

It's obvious that property needs to be less profitable, while production needs to be more profitable. I do not claim to have a miracle recipe on how to accomplish that, of course. I do know I'm very skeptical of solutions which smells of ideological blindness though, like solutions that focus entirely on tax raises or entirely on tax cuts.

[HoreTore]

It is, people tend to forget that banks weren't ALLOWED to refuse risky mortages because of the community reinvestment act. All good fun as long as the prices keep rising, but, well.... So yes regulation caused a big part of the crisis.

Nobody told them to repackage them and sell them while pretending the packages were risk-free. The risky mortgages was what caused the bubble to burst, it was not what caused the bubble in the first place. And every bubble will burst eventually.

[Fragony]

Nobody told them to repackage them and sell them while pretending the packages were risk-free. The risky mortgages was what caused the bubble to burst, it was not what caused the bubble in the first place. And every bubble will burst eventually.

If it wasn't for the community reinvestment act people inproblematic area's would have been denied these mortages. That is no exact science but odd as it may sound, banks don't like giving loans to people who can't pay them back. Now the grapes are sour and these houses can't be sold, massive losses for the banks, because of politicians intervening in the market.

[rory_20_uk]

Nobody told them to repackage them and sell them while pretending the packages were risk-free. The risky mortgages was what caused the bubble to burst, it was not what caused the bubble in the first place. And every bubble will burst eventually.

Repackaging the debt was not of itself the problem, it was the credit rating it was given that was the problem. Was it the banks or the credit agencies that awarded them the AAA ratings?

[Kralizec]

banks don't like giving loans to people who can't pay them back.

Banks don't care if their clients are solent as long as the collateral keeps rising in value. They also don't care if they can find ways to shuffle the risk of non-payment to other parties.

Why some people think that deregulation will invariably give better results is beyond me. Does anybody here seriously think that in the absence of a state, laws and financial oversight we'd have stock exchanges, or even universally accepted currencies?

Actually, I agree that politicians are largely to blame - but for the reason that they pushed deregulation as some sort of panacea. That bankers and other businessmen will cynically exploit the resulting gaps and loops is to be expected and being morally indignant when they do so is pointless. It's the governments job to provide the framework that discourages housing bubbles, ponzi schemes and other unsustainable practices.

[Sir Moody]

DING DING DING! Spot on.

It's obvious that property needs to be less profitable, while production needs to be more profitable. I do not claim to have a miracle recipe on how to accomplish that, of course. I do know I'm very skeptical of solutions which smells of ideological blindness though, like solutions that focus entirely on tax raises or entirely on tax cuts.

unfortunately this isn't possible for a completely different reason - the Foreign market

the reason manufacturing is having such a hard time becoming profitable in the Modern Western market is Government regulation.

There is cap in the number of man hours someone can work, a minimum wage, restrictions on how you hire and fire workers etc etc etc

this all pushes the cost up

now if this were true everywhere we wouldn't be in trouble, the problem is it isn't

The company I work for employs 2 printers - a British printer and a Chinese printer.

The British company is used to prototype new boxes and produce "emergency" orders - the cost of producing and delivery one box to us is around £1/box

The Chinese company is for mass production before the start of a new retail year - the cost of producing AND delivering is around £0.1/box

The cost of production and shipping is so much cheaper it makes perfect business sense to use the Chinese company for everything except short term orders (things that will need to be in a store within weeks not 2 or 3 months)

Where do these companies differ? well as far as technology is concerned they don't - they use the same machines and the same software - the difference is the labour laws

The Chinese workers work longer and for less which cuts the cost and increases production.

In order to allow the UK printer to produce the same volumes at similar costs we would need to cut back our labour laws - which as far as the Government is concerned (and if it were even allowed with EU laws) is political suicide - the people the current laws protect wouldn't look kindly on the Government allowing their employers to exploit them and they have an Organised voice in the form of a Union to let the Government know they aren't happy - its the biggest flaw in Democracy, they cant fix the problem without severely hurting their chances of re-election - the best they can do is "tinker" with the tax system and hope there's a magic setting which stops companies looking at cheap labour abroad for manufacturing

of course the biggest flaw is also its greatest strength - the same process (hopefully) stops Governments from abusing its people - fundementally its not soemthign we would actually want to fix which again is a lose - lose situation for us...

is there a solution?

damned if I know...

[Fragony]

Why some people think that deregulation will invariably give better results is beyond me. Does anybody here seriously think that in the absence of a state, laws and financial oversight we'd have stock exchanges, or even universally accepted currencies?

That is quite the extreme, only hardcore libertarians will say so.