Hollande faces competitiveness calls amid job cuts

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.