Macron presidency makes Renault, PSA tax boost, government stake sales more likely, say analysts

08 May 2017

Following in the footsteps of the Netherlands, France’s populist wave failed to break through as voters backed pro-EU centrist Emmanuel Macron as the new French president on Sunday. Pro-business Macron will be welcome news for domestic carmakers Renault and PSA Group (Peugeot Citroën), say analysts, with plans to reduce tax on employers. They also say it increases the likelihood the French government will sell its stakes in Renault and PSA.

France’s strict worker protection regulations have contributed to its economy lagging behind the EU average for years, growing 1.4% last year, with persistently high employment of around 10%. Over his five year term, if the former investment banker achieves his policy reforms this could help Renault and PSA become more competitive among fierce competition, by reducing costs and through production efficiencies. Macron aims to reduce taxes on employers and give companies more flexibility to hire and fire.

Renault and Renault-Nissan Alliance CEO Carlos Ghosn has previously said that Renault and Nissan are ready to form a stronger alliance, which would allow them to become much more competitive globally, but only if France sells its stake in Renault.

Evercore ISA analyst Arndt Ellinghorst said in a note to investors: ′We see any government sale as a positive for Renault, as it removes the barrier to a more efficient and balanced holding with Nissan.’

Macron has previously proposed selling some of the French state’s share of public companies, reportedly including its 13.7% stake in PSA, in order to fund his innovation initiatives to boost business more widely. More flexibility to maximise labour efficiency would help PSA CEO Carlos Tavares in his uphill battle to turn around newly acquired loss-making Opel, as he tries to save money by integrating Opel/Vauxhall production with PSA’s Peugeot and Citroën brands. However, with the common French political tendency to try to use the state as a business strategist, it is uncertain whether Macron will stick to this approach. Macron will also have to convince France’s strong labour unions that they will benefit from the reforms.

Germany’s auto association, the VDA, welcomed Macron’s presidency, hoping for a stronger relationship of cooperation between French and German carmakers, such as Opel and new owner PSA. VDA president Matthias Wissmann said: ′We know from our talks with [Macron] that he understands the challenges facing European industry, especially the automotive industry.’

French car-sharing startup BlaBlaCar’s founder and president Frederic Mazzella, whose company has just launched a new short-distance car sharing service, told Bloomberg: ′[Macron] is young, he’s a new generation, he created his own party, and what has been very striking in this campaign is that the biggest parties that were here for decades [the republicans and socialists] [failed to reach] the second [voting] round″¦ [Macron] is very close to the startup [company] world, he understands it very well, he understands the risks, he understands the opportunities″¦ and will help those types of companies to grow further.’ A healthy startup base is the bedrock to most growing economies.

While now president, Macron still has an uphill struggle to control the French corridors of power. Inexperienced and with his political movement En Marche (′On the Move’) being only one year old, Macron now has to assemble a cabinet that will command confidence, and then – coming from a base of zero incumbent candidates – secure a majority in next month’s parliamentary elections. Current polling, which was not hugely off-mark during the presidential campaign, suggests this could be possible. However, Macron wants at least half of his candidates to not be seasoned career politicians from other political parties which, while refreshing, risks creating a sudden rush of power-wielders with little practical experience.

The youngest French president ever at 39 years old, many fear the consequences if Macron fails to push through reform in what is a very change-resistant country – reforms successive strong predecessors, including Chirac and Sarkozy, have failed to achieve. Marine Le Pen’s hefty 35% share of the vote in the second round of the election – massively up on the Front National’s past performance – should serve as a clear warning of the consequences if Macron’s attempts at reform hit brick walls.

Marine Le Pen’s movement has long considered their march to power a long game, and has now set their sights on five years’ time. After the result on Sunday, Le Pen defiantly claimed the title of France’s main opposition to the incoming ruling government. She called on ′all patriots to join us’ as a ′new political force.’ After succeeding in the first round of the presidential election, she cast aside the historical baggage of her Front National party, running the second round of the vote just as herself. Therefore, this ′new political force’ could be a new party – a potentially wise move that could distance herself from the more divisive politics of the former Front National leader, her father. It could help her gather more acceptance in the mainstream, particularly in the centre-right she would need to woo in order to get into power.

To achieve what past presidents have failed to do, research associate at the Thomas More Institute Sebastien Laye told Automotive News that Macron needs to buck the French political trend and make big, quick decisions to break the impasse. Laye warns that the common French political way of making changes ′slowly, year after year, which is what we have been doing, [means] people will always have a feeling that you always have austerity, that politicians are asking for a lot from the workers, and you don’t see the impact or difference.’ In the event of Macron failing to make these big, quick decisions, this causes voters to continue to look for even more radical alternatives, playing into the hands of Marine Le Pen.

Mazzella believes Macron can make the big labour reforms necessary. He said: ′I think he can because we all know there is something to change in the labour law, we need more flexibility, we need to be able to cope with a world which is changing, we need to cope with the fact that we are hiring people from all over the world, and so this is very important for our economy, for the European economy, and for the entire industries that we want to reform.

′So I think that everybody is aware that we need to change, and now we just need to gather round the table and make sure that we make the right reforms. We’ve waited a long time, and so I think now everybody agrees that we need to change things.’

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