1996 Auto Sales Surge in France Covers Gloomy Future

01/06/97

Reuters reports that France saw domestic car sales rise 10.5 percent in 1996 to reach 2.13 million units, marking the country's best year for the auto industry since 1992. Unfortunately, says the French carmakers' association (CCFA), the strong showing masks a potentially gloomy future.

The country's strong rise in auto sales had its origin in a state-sponsored rebate incentive program that ended with September. When examined as whole, however, 1996 was a difficult year for the French car industry, which lost market share at home.

The CCFA said year-on-year new car sales may have risen 1.8 percent to 144,735 units in December 1996, but that those figures do not stand in isolation: "the December sales figures must be seen in the light of the prior-year month, December 1995, which showed a 15 percent drop in sales because of public sector strikes in France at the end of 1995."

Additionally, Dec. 1995 had 20 sales days, compared to 21 this year. The CCFA says sales actually fell 3 percent on a comparable-day basis. The association said the figure reflected the weakness in demand since the rebate program ended.

The combined market share of Renault SA and the PSA Peugeot Citroen group fell from 59.4 percent in 1995 to 56 percent this year. French car sales for foreign manufacturers rose 19.9 percent in 1996 and they walked away with a 44 percent share of the market, up from 40.6 percent in 1995. Fiat, Volkswagen, and GM's Opel, won bigger sales gains than French manufacturers by waging a fierce price war in the French market.

The French rebate plan exacerbated the price war, which badly eroded carmakers' earnings in France, as carmakers slashed their profit margins along with prices in order to win customers. With the long-term view of gaining market share, foreign companies tend to tolerate losses in markets outside their own. The French auto industry, however, is most dependent on sales at home, and it paid a high price for the fierce competition.

Renault Chairman Louis Schweitzer said that his group will lose money this year, and he predicted that the price war would intensify. The Peugeot group saw its first-half profit shrink by more than half in 1996. Unless the state steps in with help, the Peugeot group expects a nine to 10 percent drop in French car sales in 1997.

Salomon Brothers Analyst John Lawson said French carmakers would have trouble regaining lost market share: "Both manufacturers have fallen behind in terms of product renewal." He says that although Renault is launching new versions of its Megane and Peugeot is producing station wagon and coupe versions of its 406 and refreshing its 306 and ZX models, neither company has kept up with the pace of product renewal that some of their rivals exhibit. Additionally, says Lawson, their efforts are hampered by their need to cut expenses: "the industry is carrying too many costs given the way the European car market has developed."

Both French carmakers have asked the government to help them downsize and rejuvenate their workforce through early retirement. In December, PSA Peugeot Citroen Chairman Jacques Calvet announced that his group may have to lay off workers if the government doesn't help.

Paul Dever -- The Auto Channel