France Pulling Troubled Auto Makers Ahead by Pushing for Electrified Future

PARIS – France is pushing hard to pull its auto makers into an electrified future, and if the industry survives that long it could well become the global leader the government hopes to see.

The problem is the present.

PSA Peugeot Citroen and Renault have lost share at home and across Europe as both markets continue to fall. Sales of passenger cars in Europe declined 7.6% through September. PSA deliveries dropped 13% and Renault-Dacia slipped 17.7%.

In France, sales of light-vehicles were down 9% through the first nine months. PSA deliveries tumbled 17.3% and Renault-Dacia dropped 16.5%.

The French government has been run by the leftwing Socialist party since June and, like the rightwing government before it, is committed to helping the auto industry survive but not at the cost of outsourcing jobs.

Where the previous government attempted to keep jobs going by offering a bonus for trading in a clunker car, the new government is trying to preserve them by blocking PSA’s decision to close a major assembly plant.

The strategy of supporting electric vehicles and hybrids is to bolster a future that could be a long time coming, but at least it has started. In September, France registered about 3,000 hybrids and 500 EVs, or 2.3% of the market.

The economic crisis in Europe is affecting the French suppliers as well. While global companies Faurecia, Valeo and Plastic Omnium are benefiting from sales increases in North America and Asia, Tier 2 suppliers and those with an aftermarket business are facing continued declines.

Last year, suppliers in France sold more products in the aftermarket, but this year the segment slid 11% in the year’s first half.

Claude Cham, president of the supplier’s industry organization FIEV, says he is convinced cars and individual transportation will change in French cities and suburbs, and for the new electrified models, “the aftermarket will become an extremely important part of the auto makers’ strategy.”

Meanwhile, pressure on the French auto makers is resulting in rumors of big changes at PSA and Renault.

Renault-Nissan CEO Carlos Ghosn told his top executives in September that the two auto makers would double their savings by working more closely together. When Reuters reported the gist of the proposal this month, Renault’s stock price shot up 6% in one day as industry observers speculated whether Nissan and Renault were growing closer to a merger.

Renault spokesmen deny speculation over closer capital ties with Nissan. Renault now owns 43.4% of Nissan and Nissan has a 15% stake in Renault. In addition Daimler, Nissan and Renault have share crossholdings of 2%.

Renault slightly reduced its stake in Nissan to help fund the Japanese auto maker’s purchase of Daimler shares. France also is a major Renault shareholder, with 15.01%.

The potential savings outlined by Ghosn are twice the current level. The alliance partners say savings this year will be €2.1 billion ($2.7 billion), and Ghosn is aiming for €4 billion ($5.2 billion) by 2016 through closer cooperation in platform-sharing and purchasing.

Much of the development apparently already is under way. Nissan says it will reduce the cost of 15 models by 15% between now and March 31, 2014, when the auto maker ends its 2013 fiscal year. Reports say Nissan shares only 7% of its parts with Renault now, but that will increase to more than 50%.

At PSA, media leaks and speculation have gone back to the idea that PSA will merge with General Motors’ German subsidiary Adam Opel. A month ago, the latest rumor was that PSA and Chevrolet would start sharing platforms.

Business daily La Tribune reports a 50-50 joint venture between PSA and GM could be reached by the end of the year, while an industry publication says PSA is aiming for a 70% stake. Opel is about two-thirds the size of PSA and both are losing money and market share.

The threat of Moody’s reducing PSA’s investment rating to junk-bond level sent the auto maker in talks with the French government about financing for its Banque PSA financial arm that supports floorplans for dealers and lends money to car buyers.

Against this backdrop, electrification of the French auto market began in September and the first big beneficiary was Toyota.

Toyota-Lexus won 59% of the hybrid sales in September with 707 deliveries of the Yaris hybrid made in France, ahead of 523 Prius models. Peugeot sold 421 hybrid 3008s and 350 hybrid 508s. Some 15% of Toyota’s sales in France generally are hybrids.

“The political will and resulting press coverage ought to support the development of a segment that is already emerging in France,” says Jean-Michel Prillieux, an analyst with Inovev here. “With nearly 3,000 units in September, registrations of hybrids passed the 2% level for the first time, growing 125%.”

France also registered 513 EVs in September, up 70% from year-ago, supported by a bonus of up to €7,000 ($9,100). PSA pushed its imported Peugeot iOn and Citroen C-Zero hard in August, when EV share was only 1% of the month’s small market.

But that looked good compared with September’s miniscule 0.5% share led by the Peugeot Ion with 285 units, followed by the Citroen C-Zero (138) and Nissan Leaf (48).

EVs represented 0.3% of the French market in the year’s first nine months with 4,338 sales, according to Inovev. The Bollore Bluecar, chosen by the Paris car-sharing program Autolib, so far is the 2012 leader with 1,384 fleet deliveries.

Renault currently has three EVs on sale in France: the Fluence ZE, Kangoo ZE and Twizy scooter car. Plans are to sell a handful of its Zoe compact purpose-built EVs late this year to keep to its promised schedule, but the volume launch is not expected until next spring.

Although it is a tiny market, Renault announced that DHL, the global package delivery company, will buy 50 Kangoo ZEs by 2015. It has four vehicles now.

“The coming months will be decisive for Renault’s bet on the electric vehicle,” says Prillieux, who notes the government, a Renault stockholder, is mobilizing the country to get recharging points installed.