Va Va Doom: That’s Another Fine Bailout You’ve Got Me Into!

Screen Shot 2012-12-04 at 19.09.37The period 2007- has arguably been defined by nothing more than the bad bets of private actors and the subsequent bailing out of said actors by increasingly bankrupt states. But while a significant percentage of the developed world public is familiar with the purported rescue of a large number of financial institutions, awareness of industrial bailouts seems to be much slimmer. Yet these are not insubstantial; moreover, as the case of PSA Peugeot Citroën illustrates (‘PSA’), they are almost as futile.

October 2012 saw the French government promise a total of €18bn to Banque PSA Finance, PSA’s in-house bank whose main function is to fund PSA customers’ purchases of new PSA cars. The assumed objective of this largesse is to keep Peugeot’s operations secure until 2016; in the interim, a restructuring programme and a hoped-for upturn in the contracting European automobile market are intended to lead PSA back into the promised land of profitability.

Yet on reflection, this seems to be yet another case of a state throwing money at a business which demonstrates little sign of ever being restored to full health – and which is likely to dump another large facture on the taxpayers’ collective doormat:

1. Recovery? What Recovery? Banking on a recovery in new car sales within the next year or so seems a hopeless strategy when the macroeconomic fundamentals of PSA’s main market of Europe are still characterised by uncertainty. The perceived need for external assistance – whether from the European Central Bank, the International Monetary Fund or spare renminbi or rials – has long supplanted the days of easy consumer credit.

2. Fuel Economy. With household budgets in retreat and the cost of non-negotiable essentials such as food suddenly assuming a higher priority, rare and precious petrol is being scratched off the shopping lists of millions of European households; even in the car-addicted UK, 1.3m people forsook their cars in the 12 month period from July 2010 to July 2011. With most major cities in Europe boasting excellent public transport infrastructure, this trend can be expected to intensify.

3. A Personal NHS. Cycling and walking – two of the easiest ways to keep fit and be mobile – are both enjoying renaissances, and European urban planners are reconfiguring their cities accordingly. In some Scandinavian and German cities the obvious mobility option is already the cycle – but every journey biked is one not undertaken at the wheel.


Filed under Business, Finance

2 responses to “Va Va Doom: That’s Another Fine Bailout You’ve Got Me Into!

  1. Industrial bailouts are substantial, but hidden as you point out. However I think one must have some sympathy for countries wanting to protect their car-making capabilities. Car-makers must generate a lot of ‘secondary’ industrial work for makers of springs, and bolts and wires etc, so the impact of their loss would be huge. Let’s not forget that bikes and walkers need pavements and roads which are paid for by someone, and so arguments against government assistance are not clear-cut. Whilst valuing your promotion of a post-car society, I think its more likely that losing domestic manufacturers is just going to lead to more importation of cars within a few years, rather than a substantial shift away from using them.

    • There are solid arguments for government intervention in both nurturing and protecting key domestic industries; as you note, the importance of these industries to supply chains should not be understated. However, the PSA deal looks to be a case of throwing good money after bad, with the timescale on which the legitimacy of the deal hinges almost certainly fanciful. We would have viewed a more realistic and visionary deal very differently.

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