French auto sector facing 'storm' in 2012

It is one of the key engines of the French economy and a historically vital industry, but France's auto sector is heading into 2012 amid dire forecasts for its future and warnings of major job losses. Accounting -- directly or indirectly -- for a quarter of the national workforce, vehicle manufacturing is one of the gems of French industry and the country is home to two global auto giants, PSA Peugeot Citroen and Renault. But industry chiefs and analysts are warning that the economic slowdown expected in Europe next year will hit France's auto industry, which is also suffering from Asian competition, especially hard. "We are going to be facing a storm (in 2012). The European and French markets will be directed downward," Renault Chief Operating Officer Carlos Tavares said in an interview with Le Parisien daily this week.Earlier this month PSA chief Philippe Varin said his company was facing a significant loss in the second half of 2011 and that he expected "negative growth" on the European car market next year. Analysts are warning that European car sales are sure to plunge as the full impact of the eurozone debt crisis hits home. "The market is catching up to economic reality," said Ludovic Subran, chief economist at credit insurer Euler Hermes. "With the end of recovery plans and the atmosphere of austerity in most European countries, the automobile sector cannot but continue its slow agony and (sales) should decrease again by three to five percent next year," Subran said. Though he would not provide details, Renault's Tavares said the grim forecast meant the group would probably be looking to cut costs early next year. "In the first half of 2012, we will likely be required to take cost-saving measures," he said. Last week the group announced it was withdrawing five models from the British market and slashing the number of authorised dealerships by a third after sales there plunged from 113,000 vehicles in 2010 to 87,000 this year. PSA, for its part, has already announced major French layoffs, including 1,900 job cuts within the company itself and cost-saving measures that will see about 2,300 jobs lost at external partners. In total the company is looking to make 800 million euros ($1 billion) in savings next year. In a report on the European auto sector this month, analysis firm PricewaterhouseCoopers-Autofacts was especially pessimistic about France. Two measures that have helped artificially boost car sales in recent years -- a 1,000 euro sales incentive for buyers of new cars who scrap older ones and a tax bonus available for buying low-polluting cars -- have come to an end. "With two support mechanisms slated for removal (scrappage carryover and reduced bonuses for low-emitting cars), along with steep increases in company car taxation, France represents a major volume risk, with a possible eight percent decrease (in sales) to little more than two million units," PwC-Autofacts said in the report.