Jobless Parisians Mean Fewer Peugeots in Slumping France

Marie-Estelle Cevatheean dreams of a new car that would be better suited to her growing family after having a baby late last year. Instead, with no work, the 31-year-old Parisian can’t afford to replace her seven-year-old Citroen C3 subcompact.

“We don’t have the money yet to buy a new car,” Cevatheean said. “I need to find a job first.”

With unemployment in France rising and consumer confidence at a record low, auto sales in the country have tumbled more than any other major European market this year. That portends more pain for French automakers Renault SA and especially cash-strapped PSA Peugeot Citroen.

The French automakers will reveal the extent of their home-market woes when they report first-half earnings in the coming days. Suppliers Michelin & Cie and Faurecia SA today reported a drop of more than 10 percent in first-half profit as carmakers pushed prices lower on slumping demand.

“France is probably the most vulnerable market today,” said Yann Delabriere, chief executive officer of Faurecia, Europe’s largest maker of car interiors. The Nanterre-based supplier today posted a 16 percent decrease in operating profit to 256 million euros ($338 million).

Shares Drop

Faurecia plunged as much as 1.66 euros, or 8.1 percent, to

18.73 euros and was down 5.6 percent as of 12:54 p.m. in Paris trading. Clermont-Ferrand-based Michelin was 3.1 percent lower. Peugeot dropped 1.6 percent and Renault was off 1 percent.

Paris-based Peugeot, which will release results on July 31, is due to report an operating loss of 315 million euros, versus a profit of 4 million euros a year ago, according to the average of four analyst estimates compiled by Bloomberg.

Renault is set to fare better, as its alliance with Nissan Motor Co. gives it a stronger presence in growing markets outside Europe. The company will probably report operating earnings of 389 million euros tomorrow, down 19 percent from a year ago, according to the average of four analyst estimates compiled by Bloomberg.

Peugeot is in talks with unions about improving productivity at factories, following Renault’s lead after it reached an agreement with workers in March. Peugeot, which is closing one factory near Paris and eliminating 11,200 jobs, has said it may need more restructuring if the European market continues to slide.

Continued Slide

“We haven’t hit the floor in France yet” because higher taxes are set to weaken demand further, said Florent Couvreur, an analyst at CM-CIC Securities in Paris. IHS Automotive forecasts a 6.9 percent decline this year to 1.77 million passenger cars. Couvreur predicts the market could fall as low as 1.5 million vehicles.

Michelin, Europe’s largest tiremaker, said today first-half operating profit excluding one-time items declined 13 percent to

1.15 billion euros. Demand for replacement tires for cars and light vehicles slumped 4 percent in Europe in the first half because of the “uncertain” economy, the company said.

Peugeot, after consuming 3 billion euros in cash at its auto division last year, is in talks with banks on options to shore up its finances including a capital increase and selling assets such as a stake in its auto-loan arm Banque PSA Finance, five people familiar with the matter said. The talks are still open and there’s no clear direction yet, said the people, who asked not to be identified because the talks are private.

Dropping Market

Car sales in France tumbled 11 percent in the first half, versus a 10 percent decline in Italy, an 8.1 percent drop in Germany, and Spain’s 4.9 percent slip. This year’s fall in French car sales follows a 14 percent dive in 2012, according to CCFA, the country’s automakers’ association. Peugeot and Renault together control 55 percent of their domestic car market. The nearest foreign competitor is Volkswagen AG, with 12 percent, according to CCFA.

“I’m afraid the French market isn’t yet stabilized,” said Jacques Aschenbroich, chief executive of Paris-based Valeo SA, France’s second-biggest maker of auto parts. France would represent an exception as the worst is over elsewhere in Europe, he said.

More than 3.26 million people are jobless in France, according to the national statistics office Insee. That puts the unemployment rate at 10.8 percent, the highest in 14 years. And consumer spending power has been weakened by a 70 billion-euro tax increase over the past three years.

Soft demand has pushed carmakers to offer generous incentives to lure buyers. For signing a three-year lease on a Citroen C4 Picasso minivan in April, Andre Grall got a Samsung tablet computer valued at 500 euros, a case of wine and a cleaning kit for windshields and hubcaps.

“It’s the first time in my life I’ve gotten so many gifts for a car,” said the 62-year-old retired French railway employee. “They must be desperate.”

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