The incredibly inept policies of French president Francois Hollande are back in the news.
Hollande is following up on his proposal to not let companies fire workers, starting right now with French car maker Peugeot’s Plan to Cut 8,000 Jobs, Close Plant
An article in El Pais has better details of Hollande’s denial of reality than I have found elsewhere.
My friend Bran who lives in Spain offers this translation key paragraphs of Hollande’s “Moralization” of Political Life.
Hollande says “Peugeot’s plan is unacceptable and will be renegotiated.”
Hollande accused Peugeot owners of having delayed the restructuring plan with the excuse of not interfering in the election campaign and denied that the biggest problem are labor costs, as claimed.
“There is also a strategy, a market and some shareholders who have distributed a dividends rather than reinvest them,” he said.
The solution? “Have an independent expert examine the company, find a way out of the plan to close the plants, and create a strategic plan for the automotive industry and encourage the purchase of French products in France.”
Peugeot Has 51% Chance of Debt Default
Just to highlight how out of touch with reality Hollande is, please consider Peugeot Has 51% Chance of Debt Default, Credit Swaps Show
PSA Peugeot Citroen (UG) bond-insurance costs surged to a record, trading as if the French automaker has a 51 percent chance of defaulting as it cuts thousands of jobs and closes a plant.
Credit-default swaps on the carmaker’s debt jumped 50 basis points to an all-time high of 800 basis points at 4:30 p.m. in London, Bloomberg swaps prices show. The contracts have doubled since March and now signal a 51 percent probability of default within five years. Caroline Brugier-Corbiere, a spokeswoman for Peugeot, declined to comment.
Peugeot’s cash reserves allow it to “survive for one to two years,” said Xavier Caroen, a Zurich-based Kepler Capital Markets analyst who has a “hold” rating on the company. “We hope the French government lets them cut production and shut some sites in France, or they won’t have any earnings in the future,” Caroen said.
Hollande Turns on the Heat
The Financial Times reports Hollande turns heat on Peugeot
François Hollande, France’s Socialist president, has accused Peugeot’s chief executive of ducking the blame for the crisis at the French carmaker, ratcheting up the pressure ahead of meetings this week about its plan to lay off 6,500 workers.
Philippe Varin, the Peugeot chief, says the hefty social charges imposed on French employers are putting an impossible burden on his company as it tries to compete globally, calling on the new Socialist administration to make a “massive” cut to the charges.
“It’s too easy to blame labour costs,” he said. “There were bad strategic choices. There were delays in taking difficult decisions and shareholders who were too hungry for dividends when investment should have been the priority.”
Dose of Reality
It does not matter one iota whether or not Peugeot delayed firing workers attempting to influence the election. Whether or not Peugeot should have cut dividends earlier (yes they should have), is also irrelevant.
What does matter is Peugeot is doomed to bankruptcy if it cannot fire workers.
This slowdown in autos was not unexpected by me (but probably was unexpected by the bulk of economists). I wrote about it in advance in my article Global Collapse In Auto Sales Coming Up.
The above article discusses a plunge in new manufacturing orders in the US, China, Europe, and Japan, with email anecdotes from forecasts from a worker at Bosch, the world’s largest auto parts manufacturer who noted among other things “sales forecasts down again and more plant closure days coming up”.
In the midst of slumping demand, there is no other rational choice than reduce hours.
Economically Insane Proposal
On June 16, I wrote … If socialists take control of both houses in French parliament as expected, president François Hollande would have free rein to carry out his stated policies such as hire more public workers, raise taxes on the rich, and Wreck France With Economically Insane Proposal: “Make Layoffs So Expensive For Companies That It’s Not Worth It”
Well, the socialists did take control of both houses of French parliament, and Hollande is following through. This is what I said previously ….
Four Things, All of Them Bad
- Mass layoffs will occur before the law passes.
- Companies will move any jobs they can overseas.
- Ongoing, if it’s difficult to fire people, companies will not hire them in the first place.
- Corporate profits will collapse along with the stock market should the need to fire people arise.
The proposal to force companies to sell plants rather than fire workers as outlined by Industry Minister Arnaud Montebourg and Labour Minister Michel Sapin is nothing short of economic insanity.
Peugeot is indeed attempting to fire workers before Hollande can pass changes that would “Make Layoffs So Expensive For Companies That It’s Not Worth It“
Results Known in Advance
The results are easy enough to predict in advance.
Add to that list of four items…
5. Numerous bankruptcies
6. Massively rising unemployment – Exactly the opposite of what the law intends to happen.
Mike “Mish” Shedlock
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