Hol­lande faces com­pet­i­tive­ness calls amid job cuts

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PARIS

Re­nault SA says if Pres­i­dent Fran­cois Hol­lande wants more cars built in France, he needs to tackle the coun­try’s high la­bor costs and rigid work rules.

France’s sec­ond-largest car­maker, which is based near Paris and 15 per­cent owned by the gov­ern­ment, built fewer than a quar­ter of the 2.83 mil­lion cars that rolled off its assem­bly lines last year in France. With plants around the world, Re­nault makes its Clio hatch­back in Tur­key and is ramp­ing up pro­duc­tion at a new 1 bil­lion-euro ($1.29 bil­lion) fac­tory in Morocco.

With his pop­u­lar­ity slump­ing, the chal­lenge for Pres­i­dent Fran­cois Hol­lande is to use Gal­lois’s rec­om­men­da­tions to steer French unions and em­ploy­ers on to a path that will spur growth with­out gen­er­at­ing so­cial un­rest that has de­railed pre­vi­ous re­forms.

“Mak­ing the same Clio IV in France rather than in our Turk­ish plant is 1,300 eu­ros more ex­pen­sive and half of the gap is due to la­bor costs,” Chief Oper­at­ing Of­fi­cer Car­los Tavares said. “Within Re­nault, the French plants are the weak­est. It’s not only a mat­ter of cost, it’s a mat­ter of flex­i­bil­ity.”

For So­cial­ist Pres­i­dent Hol­lande, con­fronting such griev­ances from French in­dus­try by in­tro­duc­ing a more flex­i­ble work­place en­vi­ron­ment would put him at odds with his base among unions. At the same time, not ad­dress­ing the com­pet­i­tive­ness con­cerns of busi­ness lead­ers risks wors­en­ing an eco­nomic cli­mate that is re­sult­ing in thou­sands of job cuts at com­pa­nies from car­maker PSA Peu­geot Citroen and Air France-KLM to drug-maker Sanofi, driv­ing un­em­ploy­ment to a 13-year high.

On Nov. 5, Louis Gal­lois, for­mer head of Air­bus SAS par­ent Euro­pean Aero­nau­tic De­fence and Space Co., will de­liver a gov­ern­ment-com­mis­sioned re­port on mak­ing France more com­pet­i­tive. Hol­lande’s pledge to stem job losses will be tested by how far he is will­ing to go with the re­port.

His de­ci­sions also will be noted for their con­trast with neigh­bor­ing Spain and Italy, which are dra­mat­i­cally re­struc­tur­ing their economies to cope with Europe’s debt cri­sis as it en­ters its fourth year.

The sig­nif­i­cance of the Gal­lois re­port is as much po­lit­i­cal as it is eco­nomic. His di­ag­no­sis of why France had a record 73 bil­lion-euro trade deficit last year and has failed to grow for at least three quar­ters may not vary sig­nif­i­cantly from pre­vi­ous re­ports, like the one de­liv­ered by Jac­ques At­tali to Ni­co­las Sarkozy eight months into his pres­i­dency in Jan­uary 2008.

“Ev­ery­one agrees that France has a prob­lem of cost com­pet­i­tive­ness at a time when Spain and other pe­riph­eral coun­tries are cut­ting wages,” said Pierre-Olivier Beffy, chief econ­o­mist at Ex­ane BNP Paribas in Lon­don. “French gov­ern­ments have been look­ing for ways to cut la­bor costs for 10 years.”

With his pop­u­lar­ity slump­ing, the chal­lenge for Hol­lande is to use Gal­lois’s rec­om­men­da­tions to steer French unions and em­ploy­ers on to a path that will spur growth with­out gen­er­at­ing so­cial un­rest. Protests have de­railed pre­vi­ous re­forms, like when for­mer Pres­i­dent Jac­ques Chirac at­tempted to trim pub­lic sec­tor re­tire­ment ben­e­fits in 1995.

Com­pa­nies are con­cerned that a con­sen­sual ap­proach may amount to lack of ac­tion. Gal­lois said as early as July that France needs a “com­pet­i­tive­ness shock” with a 50 bil­lion-euro cut in pay­roll taxes to make French ex­ports more at­trac­tive. Hol­lande and his gov­ern­ment, mean­while, have sought to tem­per ex­pec­ta­tions.

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