Virus drives France’s ‘number-one car region’ to a standstill

On the banks of the Rhine in northeastern France, half of the auto-parts factory run by Arnaud Bailo stands silent, shut down by the coronavirus pandemic that hit the Grand Est region with particular ferocity. 

“To see a factory in the dark, with no noise for two months — I’ve never lived through anything like this,” said Mr Bailo, walking between machines that cost €230m in 2013 and which should be churning out transmissions for Germany’s BMW. 

Last year the Punch Powerglide factory in Strasbourg generated €350m-€400m in sales. Demand from Asian carmakers, which have started to produce again, is providing some business. But revenues were down 95 per cent in April, Mr Bailo said. “I think we’ll be a bit better in May, around 20 per cent [compared with last year]”, he added.

The uncertainty facing Mr Bailo — who predicts the whole factory will not be operational until at least June and even then at reduced capacity — is echoed across France as Covid-19 wreaks havoc on the economy. 

The Grand Est, which takes in the Champagne region and more industrialised Alsace on the German border, is particularly vulnerable. Alongside Paris, it was hit hardest by the virus after an outbreak among an evangelical church congregation in Mulhouse, 100km south of Strasbourg, in February.

Of the more than 27,000 coronavirus in deaths in France so far, close to 5,000 have been in the Grand Est.

Jean Rottner, the region’s president, does not see the local economy getting back to pre-crisis levels for two to four years. “Everyone has been hit hard. Tourism has gone to zero,” he said. The auto sector “has also been heavily impacted”. 

Since the start of France’s government-imposed lockdown on March 17, economic activity in the Grand Est has “brutally slowed” by 31.5 per cent, following the rest of the country, according to national statistics agency Insee. Restaurants and hotels have recorded falls of 90 per cent, while construction is down 75 per cent and industrial activity linked to transport 69 per cent. 

According to Insee, 943,600 of the region’s workers — almost half the labour force — were on the government’s partial working scheme at the start of May. The programme, alongside direct payments and state-backed loans, is one of the main tools the government is using to support business.

The Grand Est’s industrial base is a strength in good times. But it is now a risk — with the long, complicated auto supply chain high on the list of concerns.

The auto industry has suffered across France. According to the country’s central bank, it was the sector worst hit by the lockdown, operating at just 8 per cent of capacity in April. Along with the north of the country, it is particularly concentrated in the Grand Est, which calls itself the “number one car region in France”.

In 2015 the region produced 450,000 vehicles, some 25 per cent of national production, and had close to 87,000 employees scattered across 690 dealers, suppliers, start-ups and manufacturers, according to regional authorities. 

Mulhouse is also home to France’s PSA, owner of the Peugeot brand. PSA’s factory there will restart production next week but will only run one shift in the morning from Monday to Wednesday for the first two weeks as the group works to clear a global backlog of more than 700,000 cars in stock or with dealers. Of the 5,000 employees at Mulhouse, 1,800 will be back at work next week.

Other carmakers are also just edging up production, leaving many suppliers waiting for orders. “It’s going to take months for us to get back to a level which we are calling the new normal. And the new normal is going to be about 20 to 30 per cent less than the old normal . . . and 30 per cent is not the worst case,” said Mr Bailo.

Despite the lockdown now easing, consumer confidence is low and even when demand returns, the supply chain could be fragile. “When we start, we have to be sure that all of the suppliers can deliver both to us and to the car manufacturers,” said Mr Bailo. 

His own business was spun out of General Motors after the 2008 financial crisis, and he predicts more consolidations and partnerships. French auto-supplier Novares has already sought court protection for a restructuring.

Just over the border of the Grand Est, near PSA’s plant at Sochaux, Jean-Pierre Moret runs Technitube, employing 100 people making specialist tubing for cars. One of his biggest customers in Germany has asked for a 20 per cent price cut. “We are in discussion because 20 per cent is going to be very difficult for us,” Mr Moret said.

After his revenues dropped 70 per cent in April, he put the same percentage of his staff on partial unemployment. He has warned unions of potential job cuts if things do not improve and the government reduces its aid.

The government will unveil aid plans for the auto sector by mid-June. But not everyone is optimistic enough help will find its way to them.

“The politicians talk . . . they tell the big companies to help the small,” Mr Moret said. “The problem is that big companies aren’t helping . . . they apparently don’t have the cash.” 

While Mr Rottner is pushing local solutions, he is aware his ability to invest will fall along with his tax take. 

“We are in this transition between the health and economic phases” of the crisis, he said. “And I think by September, we will really be in the economic and social one.”

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