According to the European Automotive Manufacturers’ Association (ACEA), France is the second largest vehicle manufacturing nation in Western Europe, with 29 plants in the country. Most of these are operated either by PSA Peugeot Citroën or Renault, but others are represented too, including AB Volvo, Iveco, Daimler, Ford and the VW Group. But 29 is due to become 28 in the next few years as crisis-hit PSA Peugeot Citroën plans the closure of one plant. Statistics from the international organisation of vehicle manufacturers (OICA) show that France was the tenth largest vehicle manufacturer worldwide in 2011, producing 2,294,889 vehicles in total, consisting of 1,931,030 cars and 363,859 commercial vehicles. Overall production was 2.9% up on 2010.

France was in at the birth of the automobile and, arguably, produced the first combustion-engined vehicle – Joseph Cugnot’s steam wagon of 1769. In the internal combustion age, some credit Edouard Delamare-Deboutteville with building the first petrol powered car, although it seems that these were experimental vehicles that did not reach any kind of series production.

Just the same, some of the great names in automotive history are French; Panhard, Levassor, Albert de Dion, Emile Delahaye, Léon Bollée, Louis Delage, Ettore Bugatti, Gabriel Voisin, Amilcar, Salmson, Talbot Lago, not forgetting Armand Peugeot, André Citroën, or Louis Renault. Add the coachbuilders too – Carosserie Pourtout, Heuliez and Henri Chapron, to name but three. The French contribution to the motor industry has been formidable.

But there is little time for sentiment in the modern automotive world. France has been badly hit by the European financial crisis and that has spread to the motor industry. With manufacturers facing high costs to satisfy international regulations, the key to success lies with maintaining a global presence and/or active joint ventures to reduce the cost of developing new products.

Renault and Peugeot have to a degree followed similar paths, in that they both acquired near bankrupt rivals. For Peugeot this was Citroën in 1976 and for Renault, it was Japanese rival Nissan in 1999.

PSA Peugeot Citroën embarked on a successful strategy of platform sharing to develop both Peugeot and Citroën models, after difficult times in the mid-1980s. The company has formed successful alliances with Fiat for light CVs, Ford for diesel engine development and production, BMW for petrol engines and Toyota for the small car Citroën C1, Peugeot 107 and Toyota Aygo. This was capped by a wide-ranging alliance with GM in February 2012, announced just ahead of the Geneva Motor Show. Platform sharing, purchasing and other economies such as vehicle transport should lead to large cost savings for both PSA and GM.

The group’s weakness has been that sales were strongest in its home market and southern Europe but the company lacked a presence in key markets such as North America, despite activities in Iran, South America, China and India. It remains to be seen how effectively the GM alliance can turn round the fortunes of two ailing companies – PSA Peugeot Citroën and GM Europe.

Renault also faces problems in the economic crisis, not least for its bold adoption of electric vehicles ahead of rising consumer demand. The company has established a joint venture with GM for the production of light CVs, but it was the alliance with Nissan that has done much for the company. Nissan has been successfully revived and its strong presence in North America has helped to offset Renault’s lack of presence in this important market. Renault’s eastern European presence is assured by its ownership of Dacia of Romania and 25% stake in Avtovaz of Russia. More recently Renault-Nissan has formed an alliance with Daimler, which will result in joint engine and other developments.

The current state of the French vehicle market is a problem for both major French concerns. Taking cars and light CVs for the January to August period, vehicle sales in France are down 12.4% compared with the same period in 2011 to 1,551,273 according to data from the French manufacturers’ Association, the CCFA. As the leading brands, it is the French manufacturers that are suffering the most. For the January to August period, compared with 2011, Peugeot registrations are down 18.9% to 253,749, Citroën is down 17.6% to 226,969 and Renault is down 16.7% to 320,826.

LMC Automotive offers this analysis:

“The latest data for August for the French car market once again shows the selling rate below 2.0m units/year. Year-to-date the market is down 13.4% – part of the reason for this result is that it includes a comparison to a heavily inflated market in early 2011 relating to the spill over of the 2010 scrappage scheme. However, while the latter half of last year saw the selling rate average over 2.1m units/year post-scrappage scheme, the selling rate in 2012 has so far only managed to climb above 2.0m units/year for one month, this fact highlights that ongoing economic weakness is negatively impacting consumers’ car buying decisions.

“As elsewhere, the French car market underwent a major distortion during the economic crisis and subsequent recession. If one was to look at the car sales performance alone, the very strong market of 2009 (close to an all-time record at 2.25m units) offers a completely different picture of events than any economic commentary, or data, would provide.

“The distortion was, of course, caused by the liberal employment of government scrappage incentives coupled with generous OEM pricing discounts which gave rise to once-in-a-lifetime bargains, especially on smaller cars. That period has now come to an end – the scrapping scheme finished in December 2010 though the impact was still being felt in registrations in the opening months of 2011. It must be noted though that the French scheme was unlike any other in Europe in that the scheme was phased out via stepwise reductions in the incentive amount over 2010.

As we have discussed on other pages, a report commissioned by the French Government published in September says that job cuts and restructuring at PSA Peugeot Citroën cannot be avoided to ensure the company’s survival. Overcapacity among European carmakers is one of the key reasons, reckons the report. The report was carried out by a senior civil servant in the French finance ministry, Emmanuel Sartorius. The report highlights strategic errors and the company has already said it will shed some 8,000 jobs in addition to the 3,500 announced last year, and close its Aulnay-sous-Bois plant near Paris by 2014.

So what of the business car sector? ALD leads the full service leasing and fleet management market in France. The company claims a market share of almost 21% and manages 296,000 cars. Apart from its four-wheel business, ALD France launched into the full service leasing sector for motorcycles last year, as well as offering a car-sharing scheme, launched in 2010.

Not surprisingly, it is private customers who are likely to hold back on buying a new car. ALD France’s Laurent Corbellini (Marketing Director) and Guillaume Maureau (Deputy Chief Executive Officer – Sales & Marketing) identified the strength of the German premium brands and the rise of the Korean manufacturers as additional problems for PSA Peugeot Citroën beyond the financial crisis.

ALD data shows that in 2011, 51% of light vehicle registrations (approx 1,343,850 passenger cars and light CVs) were for private buyers, with 28% (approx 737,800) in the hands of corporate buyers and long-term rental business, with 9% (approx 237,150) accounted for by short-term rental. ALD attributes some 426,793 registrations to long-term rental business, an increase of 9.3% on 2010. Laurent Corbellini told us that of the 28% of new registrations attributed to corporate buyers and long-term rental, around 58% or approximately 427,920 vehicles were being operated on full-service leases.

“That share is growing every year by 2 to 4%”, he commented. French manufacturers accounted for some 54% of that total.

Full service leasing top 10

France YTD 2012

1 > Renault Clio

2 > Citroën C3

3 > Peugeot 207

4 > Renault Megane

5 > Citroën C4

6 > Peugeot 308

7 > Renault Scenic

8 > Renault Twingo

9 > Volkswagen Golf

10 > Renault Kangoo

Source: ALD Automotive

Business Car Taxation

France operates a Bonus-Malus tax scheme for business cars to encourage the take-up of environmentally friendly cars. This has been successful with around 2% of business cars being hybrid or electrically powered. There are a number of other taxes and incentives too. VAT can be reclaimed on light CV purchases, but not on cars. At the same time, businesses can reclaim the VAT on diesel fuel for business use, but not for petrol. “This is the reason why 98% of business cars are diesel”, says Laurent Corbellini, marketing director for ALD.

The bonus-malus scheme works by giving vehicles a tax credit according to their rated CO2 emissions in four bands. So vehicles with between 0 and 50g/km are eligible for a €7,000 tax credit (up to 20% of the purchase price). This reduces to €200 for cars with 91-105g/km CO2. Hybrid cars operate on a different scheme with cars with between 0 and 110g/km eligible for a €4,000 tax credit. Broadly the Malus scheme levies taxes on vehicles with 141g/km or more, with a maximum charge of €3,600 for vehicles with CO2 emissions of 231g/km or more. In addition there is an annual tax on cars, normally €160, but there is a sliding scale of exemption based on the year of first registration and CO2 emissions if given. Businesses must also pay an annual tax, which is also based on CO2 emissions with the charge rising according to the CO2 rating. The charge is levied per gramme of CO2 and encourages companies to operate cars with the lowest CO2 rating.

How can we expect the market to develop in the future? “I think that the market will get to around 2 million vehicles”, says Laurent Corbellini. “We expect that the company share will increase and the private share will decrease. I think that in the company share, full service leasing will increase more and more.”