French Auto Makers

The Greek financial problems have been covered extensively in the news of late.

The government can't meet its debt obligations, unemployment is over 20% and some other European countries think that Greece should be dropped from the euro

zone and revert back to using its own currency.

This issue also has global economic implications that has the entire world

watching how this is all going to play out.

Another European problem that has gotten much less attention, is the problem that

French auto makers are having with selling their cars.

This problem has several components which collectively will be very difficult for French

auto makers to solve.

The first problem is wages.

Over the past decade the wages that auto workers in France are paid has increased by

17%.

This increase is more than twice the increase that German auto workers have

received in the same period of time.

The second problem is productivity.

At the same time that French auto workers have been seeing their wages increase by

17%, their productivity has fallen.

When wage costs increase and productivity falls that is a recipe for disaster.

The third major problem for French auto makers is that their production plants and

the IT systems used to make them run smoothly are old and in need of replacement

or upgrades.

But with wages having increased.

productivity falling and sales lagging, French auto manufactures do not have the money

necessary to make these essential improvements to their manufacturing

process.

French Auto Makers Perfect Storm

This same perfect storm has been happening to Italian auto makers as well during the past

ten years.

The question is, is this confluence of problems inevitable for European auto

makers.

The answer is no.

Competitors Of French Auto Makers Have Thrived

During this same period of time of tumult for French and Italian auto makers, auto makers in Portugal, Spain and Ireland have been able

to lower their cost per unit sold by 7% to 12%.

To compound the problem for French and Italian auto makers, is the fact that most of the vehicles they sell are on the low end of

the auto price scale.

Keeping the price of these vehicles low is essential to the success of selling them to

customers throughout Europe.

In contrast, Germany, which is known primarily for its luxury vehicles, has seen a

consistent increase in the number of vehicles its sells over the past ten years.

If French auto makers are going to solve their problems, they are going to need to start producing vehicles that have bigger sales margins, upgrade their systems and work with labor so that they can bring back the

French auto industry together.