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Monday
Oct012012

Worse Than The Infamous Lehman September: France’s Private Sector Gets Kicked Off A Cliff

This should have been an exciting moment: the Paris auto show, “Mondial de l’Automobil,” this weekend with over 100 new models from around the world, from econo-boxes with rounded corners to exotic prototypes that will never see production. Chicks next to some of them. Nausea-inducing colors, downsized motors. Something for everyone. But it had been preceded by two days of supplier events loaded with the dire verbiage of an industry on a death march. Particularly in France, whose private sector is veering into economic fiasco. And on Monday, it became official.

A barometer of the real economy in France, new car sales as measured by registrations, crashed in September—down 18.3% from September last year, and accelerating (year-to-date, sales were down “only” 13.9%). It was the worst September in years, worse even than the infamous Lehman September of 2008. And 2012 is shaping up to be the worst year since long before the financial crisis.

Of the French brands, market leader PSA Peugeot Citroen saw sales drop “only” 5%, helped by the introduction of its new sub-compact Peugeot 208. But year to date, sales were down 18.4%. Renault got killed. A stunning 33.4% plunge for the month and 19.8% YTD.

An equal-opportunity fiasco. Even the heroes from across the Rhine got their clocks cleaned in France. Volkswagen (VW, Audi, SEAT, Skoda) fell 17.4%. BMW and Mercedes where hit as well. GM (Opel, Chevrolet) tumbled 20.8%, Ford 31.5%. And Fiat, well, it might as well hang up its hat: down 38.4%!

In an ominous sign for the private sector and its investment climate, light utility vehicles (less than 5 tons) dropped 12.5% for the month, and “industrial vehicles” (over 5 tons) 20.1%.

“It’s unclear if automakers can survive without government help,” lamented VW CFO Hans Dieter Pötsch. But government help may be hard to come by. Steeped in the debt crisis, governments are struggling to reduce their deficits, or at least keep them from ballooning. Cash-for-clunkers programs, which burned through many billions of taxpayers euros after the financial crisis, or outright subsidies, will be a tough sell when pensions, salaries, and social services are on the chopping block.

French President François Hollande could only waffle about supporting the “competitiveness” of the French auto sector. Alas, on the production side, the sickness goes back years. In 2005, PSA and Renault together assembled 3.2 million vehicles in France; last year, it was less than 2 million, and this year will be even worse.

And then the second shoe dropped. France’s Manufacturing Purchasing Managers’ Index (PMI) dove to 42.7 in September, the lowest reading since April 2009, during the depth of the financial crisis. Only Greece, which lost a fifth of its economy over the last five years, was lower, but barely so. Even Spain outperformed France. Export sales skidded, but the worst was in the domestic market. New orders were particularly hard hit, a harbinger for pain to come. Lacking new orders, manufactures ate up their backlog at the fastest rate since March 2009—when the economy appeared to have seized.

Lack of work pushed the PMI employment component down for the seventh month in a row. Already, with unemployment at 10.6%, youth unemployment at 25.2%, and rising, and more than 3 million people out of work for the first time since 1999, heat is building up in the system.

Lay-offs, albeit difficult to undertake in France, have been making headlines. Trophy companies are involved, PSA and Air France-KLM Group, for example. Hollande himself stepped in to prevent them, or at least to delay them. Today’s headline hog is ArcelorMittal, largest steelmaker in the world. It will, despite government machinations, permanently shut down two idled furnaces. Furious workers instantly occupied the plant. At least they didn’t take management hostage, not yet.... [Taking Bosses Hostage, a Negotiating Tactic in France].

The largest companies get most of the attention. But the confidence barometer of small and medium-sized businesses—the ones that are supposed to create most of the jobs—crashed in September to 84, the lowest level ever in the series, which started in 1992. It was at 129 in April. That’s what falling off an economic cliff looks like.

The private sector in France is only 44% of the economy, and shrinking. 56% is public spending, to remain level in the 2013 budget. So a measure of stability. But to rein in its deficit, the government is trying to impose a slew of tax increases on the private sector and households—how exactly that might perk up the private sector remains a mystery. Fasten your seatbelts.

In Greece, whose PMI was even worse than France’s, GDP, bad as it is, no longer does justice to reality. Take new vehicle registrations: they plunged 46.7% from prior year and 80% from 2008. People have stopped buying new cars. And not just cars! Read.... Greece, Tell Brussels “To Take A Hike” And Let The Troika Bail Out The ECB Instead.

And here is Switzerland-based George Dorgan wading into a nasty fight between the Swiss National Bank and Standard and Poor’s. Read.... Is Standard And Poor’s A Rating Agency Or A Rumor Agency?

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Reader Comments (7)

Why do people talk about tax increases on the super wealthy are bad? Just what do they buy? Food like the rest of us, household goods like the rest of us. How many cars can they have and keep buying? How many homes, how many boats, private planes/jets???

It is truly the 99% vs the 1% (actually .001) who don't want their taxes increased because it's "Class Warfare" and Unfair to punish success. They are lucky Christian dogma talks of Jubilee and taking it ALL, giving it to the rest of the community and making the once rich start over, unlikely which means somebody else will get a turn.

Yes Europe has its problems, but it will solve them WAY before the US does and even after the US defaults on its debt, it will still be behind in development of alternatives in transportation and energy, dragging its feet because of politicians and poorly informed public + apathy.
October 1, 2012 | Unregistered CommenterAnthony
What you don´t mention, Wolf, how much French car production has switched from French plants to Chinese plants over say the last 15 years? I know China has competitive advantage in labour but surely this tactic is disadvantageous for the French economy long run.

The real problems that EU & U.S. economies face is that NeoCon, free trade economics simply don´t work. They are just so dysfunctional. Perhaps Wolf, you may want to enlighten us about the UK trade balance deficits. It´s been negative (apart from 1 month) for the last 30 years. How long can this go on for?
October 2, 2012 | Unregistered CommenterHardcore Uproar
I´m not rich, from a country in assistence, Portugal, i´m in the 99% and i find it fantastic that people like Anthony think that it is rigth to rob people of their property.

If you have an ideia, if you start a bussiness and you give the consumer a product that he likes and whants and
by doing so you get rich in the process, what´s is the morality in stealing its property?

The rich many save, and to exist investment you need savings.

It´s not the rich per se, the trust fund rich that we need, we need entrepreneur, he plays a kee role in the process of criating wealth.

The state dosent create wealth he robs people of it.

If jonh see´s mary in need of medical assistence and robs 200€ from Ryan, to give mary medical assistence
It´s a robbery, if 1 person agree´s, it´s still robbery, and if 100milion? its still a robbery.
The state does just this, it takes from some to give to other´s, it´s legal theft nothing more.

know what we se is that it exist is crony capitalism, and the politicions are in bed with oligarchy to mantain there wealth, the problem is the finance of the economy.

Free trade works, free market capitalism was not been put in play.
What we see today is the decline of the inequality in the world, and that is a good thing, Chinese, Indian, etc.. life a lot better today, than 20years ago.
What people arent willing to acept is competition, and they dont see that the increase of the states burden in the economy in the last 20 years is the major cause of the problems.

The state gives advantages to some on the expense of others.

who was the culprit of the imbalance that a country like mine achieved? Was the free trade responsabel for 369% debt of the portuguese society (private and public)?

No it was the politicians that made people think that wealth and prosperaty has right around the corner, and you didnt need to save, you dindt need to work hard.

Wolf love the site keep up the fantastic work
October 2, 2012 | Unregistered Commenterfilipe Silva
“It’s unclear if automakers can survive without government help,” lamented VW CFO Hans Dieter Pötsch. Interesting, surely he means they can't survive without being given a hand-out of taxpayers money? The very people he will be retrenching by their thousands if sales don't improve for poor little Volkswagen. Just imagine how he would be lamenting if he lost his job and his house and car were repossessed by the banks.
October 2, 2012 | Unregistered CommenterMagnus Maximus
Filipe : without State there is no entrepreneur ; it's only normal to share the wealth created by his workers, to finance roads, waste treatment, water supply, hospitals, schools, all which contribute (or should) to a more harmonious, fair and functional society. I agree that it all boils down to irresponsible and corrupt politicians and that they are the ones that should be purged first, followed by the financiers.

But sadly the population, mired by your entrepreneur's product "that people want" and subconsciously programmed by your entrepreneur's marketing departement to be in a state of eternaly unsatisfied desires (the founding stone of modern-ie neo capitalism is creating unhappiness by treating people, nature, life as commodities) was too obsessed with its own never-ending dissatisfactions and the mindless habits and cravings it creates to actually supervise and police the democratical process of its rulers.

You know something about that in Pt. I hope you get your shit straight and tell the Troika to fuck off. Good luck.
October 2, 2012 | Unregistered Commenters0l
Thank you for the answer s0I.

I believe that the roll of the state cannot be more than administration of justice, security and defense.
I believe that the free market can provide everything else.

I do see your point and have to agree with it, that people tend to be in a state of unhapiness, and that this state get´s worse if people cant consume, because you became what you have and not what you are.

Here the state created almost all of the problems, major corruption, stupid policies, its 42years of continuous deficits, the spending was so stupid its incredible, for exemple the state built a airport that know has one fligth and they pay to the company to fligth there.

The state consumes 54% of the GDP, and so on, a mess.

It´s funny but if it wasent for the Troika the state whouldnt do jack shit...

The Troika said to the goverment to not raise so much taxes that it needed to cut spending, and they did the oposite.
People have no ideia of the state Portugal is in, in my opinion worst than Greece.
The constitution is of a socialist society, the constitutional court said it was unconstitutional to cut civil servants wages, and its almost impossible to fire them.

Dont believe what you see on the media, they have no ideia how bad this is, and will get.
October 2, 2012 | Unregistered Commenterfilipe Silva
@ Anthony

The trick is to convince the masses that "high income taxes for the super-rich" are good, justified and moral. The super rich are usually not much affected because they are able to do so-called tax-optimization (allocate their wealth in a way that is not taxable, move to the black market, or bribe whoever they need to gain preferential treatment). If the regulations become so oppresive that tax-optimization is impossible they move to other jurisdiction taking jobs and wealth with them. The tax income falls. The budget is empty. The country is bankrupt and "needs" to print some money to prop-up bond market and to calm the agry mob. Inflation occurs. Sooner or later a few zeros appear next to the price of anything. Now the masses wake up "super-rich" in terms of notional value of funny money in their wallets. Then they realize that unfortunately the income bracket over which the gubbermint defines anyone as "super-rich" is not inflation indexed.

Not realistic ? Wherever you live, just check, if fiscal authorities index income brackets determining the tax rate by inflation.
November 2, 2012 | Unregistered Commenter99er

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