Government and unions involvement present their own challenges for the OEMs

As the European car sales continue to struggle, automakers are looking for ways to streamline operations and reduce costs as a result of sales recovering soon. In particular, French automakers Renault and PSA Peugeot Citroën are looking at ways of strictly controlling production costs. As suppliers were forced to in 2008-9, OEMs are now restructuring their businesses.

Though this is an issue for all Europe’s automakers, this may prove particularly painful for the French automakers, as there is a nakedly political dimension to any restructuring decisions they may be forced to take, thanks to French politicians and the industry’s powerful trade unions there.

In France, where one in 10 jobs depends directly or indirectly on the car sector, and unemployment is creeping to 11%, there is pressure on Renault and Peugeot to minimise job losses and show that production in the country still has a viable long-term future.

Though they are united in this problem, both face different challenges. In certain respects it is the international dimensions of Renault that make the difference. Its partnership with Nissan is key to Renault’s financial health at the moment, as are Dacia and AvtoVAZ, Russia’s biggest car manufacturer, in which Renault and Nissan agreed last December to take a controlling stake.

Peugeot has focused instead on its western European base, though it has recently announced a deal with General Motors which will enable Peugeot to share vehicle platforms with GM and boost the purchasing power of both companies for components, raw materials and services. Peugeot sees this alliance as a basis for expanding in Latin America and Russia and for reducing European sales to halve the group’s total by 2015.

It’s these measures that suppliers will need to remain alert to, as they find themselves competing for fewer and fewer contracts. The shrinking number of platforms will also challenge suppliers’ readiness to localise supply into new locations quickly at an OEM's whim as they set up production in China and other high growth regions.

Another contrast lies in the shareholding structures of Renault and Peugeot. Renault is 15% state owned. Paradoxically, the consequence is that, over the past six years, Renault has found it easier than Peugeot to shed jobs and cut costs. Letting the French state feel part of the picture clearly makes all the difference. Renault has not closed any factories, only trimmed staff numbers and frozen pay.

Conversely, when Peugeot stated its intention to close its Aulnay plant near Paris in July, the government reacted by demanding the right to place a nominee on the company’s board during negotiations for EUR7bn in loan guarantees to Peugeot’s financing arm. The political tug-of-war does not help suppliers stabilise their volume planning. Last week Saint Gobain announced its decision to close its windshield production facility in Belgium directly because of Ford’s closure of its plant in Genk.