Will financial results concentrate French union minds?

Will financial results concentrate French union minds?

Just another quiet week in the French auto business?

Well, even by the standards of our friends across the English Channel, it has been a momentous few days, with plots and sub-plots all seemingly converging into one giant maelstrom of developments that has seen the sector dominate both domestic and international headlines.

Whether co-incidentally or not both giants of the French auto game - PSA Peugeot Citroen and Renault -jointly facing catastrophically plunging European demand and the need for radical surgery - separately held the last of ten tortuous meetings with all their major unions this week.

There's been a fair amount of posturing going on too, with both sides staking out their positions and wheeling out the big guns to impress the seriousness of the situation; witness Renault producing its France operations director to underscore to the labour bodies the automaker's determination to implement restructuring.

"We are at [the] end of the process," a Renault spokeswoman told me gravely from Paris. "It is the tenth meeting - it is the last one - everyone is around the table.

"Exceptionally tonight, it is Gerard Leclercq, director of French operations, normally it is [the] director of human resources."

Just before that meeting mind, the moderate CFDT union had thundered its deep disapproval of Renault's plans, insisting that faced with management's "blocking attitude," it would refuse to sign a deal based on current demands.

"Tuesday [12 February] is a last chance meeting, management has its backs to the wall," said the labour body. "For more than ten years, staff have not ceased in making efforts to improve the competitivity of their business."

But note the word 'current.' As I say the CFDT normally takes a far more moderate line than its hardline cousins, the CGT, whose appetite for militant mobilisation appears to know no bounds, including dragooning in support from myriad other auto bodies.

However, after marathon talks this week, Renault at least appears to have secured a tentative deal that could see productivity improvements shave EUR300 per car in exchange for minimum production levels of 710,000 vehicles to 2016.

That EUR300 per vehicle in production savings is no small beer - and would allow further manufacture as Leclercq explained: "If we arrive at an agreement...at Flins, for example, this will enable us to boost Clio IV production, in particular by producing high-end versions at the plant such as the Initiale Paris model".

So much for the carrot, but the union stick will surely be that minimum production of 710,000 vehicles. With Europe posting ever-more gloomy numbers, what is Renault banking on to achieve that figure? The unions appear to be adamant it's a numbers game - you can't blame them - that's their job to ensure continued employment - but who knows what the landscape will look like in 2016?

Timed exquisitely as well, both sets of exhaustive talks coincided with PSA and Renault's 2012 results this week, a sobering twin hit of reality that will have come as a bucket of cold water to the French labour bodies.

A mixed bag they are too, with PSA taking a deep breath and including a staggering write down of EUR4.7bn in asset valuations, making the headline loss figure some EUR5bn.

But despite the telephone numbers in the red, Metzler Bank automotive analyst, Juergen Pieper, told me from Germany the figures were more encouraging, in fact, "not as bad or as catastrophic" as first thought.

"It is a little bit better than expected on the liquidity side, on the cash flow side," the analyst said. "We always heard from PSA outflow is EUR200m [burn], so now it is hardly more than EUR100m per month. The Group operating loss of EUR580m or so is slightly better than expected. Two of the key results are not as bad as expected."

Meanwhile, still in Paris, Renault's 2012 results showed net income falling 15% to EUR1.77bn on revenues of EUR41.3bn and although that's still very much in the black, it wasn't enough to please one tough analyst in the guise of Credit Suisse's specialist sales industrial equities, David Arnold, who maintained the automaker was "betting the house" on recovery this year.

"We are now seeing the highest-ever inventory of independent dealer carry going into 2013," Arnold told me. "This is [an] unsustainable position and it is predicated on a recovery in the European market.

Despite Arnold's caution, the analyst nonetheless hailed the way in which Renault stock outperformed last year and its recent rally, as well as the automaker's results, which were "better than expected" with its net financial position boosted by the EUR924m disposal of AB Volvo shares.

"It is a very, very strong working capital model and we can't argue with the move in the market," said Arnold. "What we do know is the inventory build requires a second-half recovery and we don't believe we know it may happen."

Now the results smoke has cleared, both sides in the two automakers, often involving the same unions, need to draw breath and sit down again to attempt to ink a final deal.

There are some in the more extreme labour bodies, 'Trotskyist' was one description from someone in Paris to me last week, who appear to want conflict at any price in order to further their own political ends, as extraordinary as that sounds.

But underneath all that fiery rhetoric and beating to quarters, it is as ever, the ordinary French staffer, struggling in a grim European environment, who just wants to hang on to a job and pay the rent.

Time for both sides to pull back and reasonable voices to be heard. Or there may not be a French auto industry to argue about.

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