Auto focus

Macron win to fuel Renault, PSA global plans

Murali Gopalan | Updated on January 11, 2018

New hope French automakers are keen to go global and make up for lost time   -  shutterstock

The President-elect will ensure that French carmakers are not bogged down by protectionism

The top managements of Renault and PSA must have heaved a huge sigh of relief after Emmanuel Macron’s comfortable victory in the French presidential elections.

The 39-year-old, who will take charge in the coming days, is no proponent of protectionism unlike his rival Marine Le Pen, who was quite vocal about her vision for a globally isolated France. And even as Europe is in the midst of an upheaval with right-wing groups coming to the fore, the recent electoral results in France and the Netherlands have clearly shown that the public thinks differently.

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The two French automakers must have been hugely concerned about the prospects of a Le Pen victory. PSA had just acquired Opel from General Motors and any move to tighten France’s trade barriers would have only complicated matters. After all, this is precisely what has been happening across the Atlantic where US President, Donald Trump made no bones about his aversion to new car investments across the border in Mexico.

It was also less than a year ago when the UK chose to exit the European Union in a referendum, which sent shock waves across the world. For automakers such as Jaguar Land Rover and Nissan, the prospects of shipping out more expensive cars (thanks to levy of duties) to Europe would have been a nightmare. Likewise, importing components from the continent would have entailed new levies. For the moment, things seem status quo for the two companies, though there is no telling what could emerge as the realities of a new trade order between the UK and Europe sink in.

Brexit worries

The last thing CEO of Nissan, Carlos Ghosn, would have wanted was a Brexit-like encore in France, which would have been the last straw for the business. As he wears the same hat at Renault, this would have been a double whammy had protectionism come to the fore in France too.

The French carmaker has been going flat out with its global plans even as Europe remains its top market. Ghosn was the architect of the Nissan acquisition in 1999 and this alliance has only grown stronger over the years. Last year, Ghosn was in the news again when Nissan moved to pick up a 34 per cent stake in the beleaguered Mitsubishi Motors.

With Macron at the helm of affairs, it remains to be seen if the French government will look at reducing its stake in Renault from the current 20 per cent. It will be a welcome move if it facilitates an easier integration with Nissan, which holds 15 per cent in the French automaker (to Renault’s 44 per cent).

India, incidentally, was earmarked as the first manufacturing location for the Renault-Nissan. Over the years, the plant near Chennai has grown exponentially and is home to a range of models from the two brands. The Chennai facility also emerged a benchmark of sorts for a similar initiative in Morocco.

Today, with Mitsubishi too in its kitty, India could just see a flurry of activity in the coming years as three bran++ds jostle for attention in the market. These are early days yet for Mitsubishi, which did not create too much of an impact here, but a renewed thrust from Nissan could just translate into some interesting product development initiatives after 2020. As for PSA, it has perhaps been slower than Renault in the global stakes game but all that has changed under its CEO, Carlos Tavares. The carmaker, which was struggling till over a couple of years ago is now a lot stronger thanks to a lifeline from China’s Dongfeng Motors and the French government. It acquired Opel and is now eyeing Proton of Malaysia too.

Tavares knows too well that it is imperative for PSA to grow its presence beyond France and it is here that a Macron presidency is the best piece of news. It will also be interesting to see if the French government pushes for a stake sale in PSA.

For the moment, Tavares has already indicated the group’s intent to grow its presence in Europe with the Opel acquisition while sowing the seeds in the ASEAN region. China, as the world’s largest market, will also be top priority thanks to the Dongfeng alliance.

PSA’s India plans

PSA has also finalised its plans for India, a country it abandoned in the late 1990s when the script went completely awry. Like Renault-Nissan, it will operate out of a plant near Chennai, which was used to assemble Mitsubishi models. Its ally for the India outing is the CK Birla group and there will be a lot of emphasis on localisation and ensuring that a competitive cost structure is in place.

Macron’s triumph is welcome news to France’s auto industry, which has already been quite slow in exploring new global frontiers. It would have been a severe setback had populism dominated the script and pushed both PSA and Renault back to grappling with high wage costs and creating new facilities back home. This is precisely what is playing out in the US where Mexico has lost out in getting investments from companies like Ford.

The electoral verdict in France also augurs well for Europe, which can breathe a lot easier in a regime of free trade. Hopefully, Germany will also deliver a favourable result in its federal elections scheduled in September this year. The auto industry is a critical growth engine and the last thing it needs is a millstone around its neck in the name of protectionism. It’s just not worth it.

Published on May 11, 2017

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