Renault seeks to restructure French factories to slash costs

Workers attend the general assembly of strikers in a workshop of the former Renault factory on the Ile Seguin near Paris in April 1953. (AFP)
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Updated 30 May 2020

Renault seeks to restructure French factories to slash costs

  • Company in talks with unions over plans amid fears of public backlash over jobs

PARIS: Renault said on Friday it was launching talks with unions to restructure several French car plants, potentially leading to closures, as it confirmed plans to cut around 15,000 jobs worldwide.

Faced with a slump in demand exacerbated by the coronavirus crisis, Renault is aiming to find €2 billion ($2.22 billion) in savings over the next three years as it hones in on key car models.

“We thought too big in terms of sales,” interim chief executive Clotilde Delbos told a conference call, adding the firm was “coming back to its bases” after investing too much in recent years.

The company plans to trim its global production capacity to 3.3 million vehicles in 2024 from 4 million now, focusing on areas such as small vans or electric cars as it freezing manufacturing expansion in countries such as Romania.

The company — due to bring ex-Volkswagen executive Luca de Meo on board as CEO in July — said it would also slash costs by cutting the number of subcontractors in areas such as engineering, reducing the number of components it uses and shrinking gearbox manufacturing worldwide.

It hopes to find additional savings by producing more cars jointly with its Japanese partner Nissan, which has also outlined a plan to become smaller and more efficient.

Renault said the restructuring measures, which include job cuts and employment transfers that would affect just under 10 percent of its global workforce, would cost €1.2 billion.

FASTFACT

15%

Renault is 15 percent owned by the French state.

The group, which is 15 percent owned by the French state, said some plants such as the one in Flins, close to Paris, where it makes its electric Zoe models, could cease to assemble cars and center on recycling activities, instead.

Six sites in all, including a component factory in Brittany and the Dieppe factory where the group’s Alpine cars are made, will be under review.

Unions in France have said they feared the measures could lead four sites to shut, though outright closures are likely to lead to a public backlash.

The government has said it will not sign off on a planned €5 billion state loan for Renault until management and unions conclude talks over jobs and factories in France.

Renault was already under pressure when the coronavirus pandemic hit, posting its first loss in a decade in 2019. Like its peers, it is now trying to juggle a slump in revenue with industry-wide changes such as investment needed to produce more environmentally friendly vehicles.


Gold rush at Turkish bazaar a test of trust for lowly lira

Updated 15 August 2020

Gold rush at Turkish bazaar a test of trust for lowly lira

  • As precious metal prices soar, Turks rush to buy amid economic uncertainty and a volatile currency

ISTANBUL: Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight.

With memories of a currency crisis which rocked Turkey’s economy only two years ago fresh in his mind, the retired police officer was among those playing it safe as he queued in the city’s sprawling market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.

“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said. “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”

The day after Ayhan bought his gold on Aug. 6, the lira hit a historic low and remains skittish, laying bare concerns that Turkey’s reserves have been badly depleted by market interventions, which are showing signs of fizzling out.

Turks traditionally use gold for savings and there may be 5,000 tons of it “under mattresses,” with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.

Although bullion has never been more expensive, vendors at the Grand Bazaar said almost no one was selling their gold jewelry. There are only buyers.

HIGHLIGHTS

  • Currency touched record lows in three volatile weeks.
  • Local holdings of hard currencies at all-time high.
  • All are buyers at Grand Bazaar, despite expensive gold.

“I’ve been chatting with hundreds of people who are thinking about selling their cars or houses to invest in gold,” vendor Gunay Gunes said.

In the last three weeks, as selling gripped the lira, local holdings of hard assets such as dollars and gold jumped $15 billion to a record of nearly $220 billion.

There is no evidence suggesting people are about to pull savings from banks, and this week the lira has hovered around 7.3 versus the dollar, although it remains among the worst emerging-market performers this year.

Demand has eased since Turks withdrew some $2 billion in hard foreign cash from their banks during a March-May period in which a lockdown was imposed and the lira hit its last low. Analysts say that if Ankara cannot boost confidence in the currency, which has fallen almost 20 percent this year, import-heavy Turkey risks inflation and even a balance of payments crisis that will worsen fallout from the coronavirus crisis.

Given foreign investors now have only a small stake in Turkish assets, they say the key for President Recep Tayyip Erdogan’s government is convincing Turks to stop turning to the perceived stability of dollars and gold.

The central bank and treasury did not immediately comment on the dollarization trend or any policy response.

Finance Minister Berat Albayrak, Erdogan’s son-in-law, said on Wednesday the lira’s competitiveness was more important than exchange rate volatility.

The central bank has effectively borrowed on local dollar liquidity to fuel foreign exchange market interventions, which are meant to stabilize the lira.

Through Turkish state banks, which together are “short” foreign exchange by $12 billion, the central bank has sold over $110 billion since last year. In turn, the bank’s gross FX buffer has fallen by nearly half this year to below $47 billion, its lowest in years.

The central bank has said its reserves naturally fluctuate in stressful periods, and the treasury says the bank intervenes at times to stabilize the currency.

But ratings agencies say Ankara should take decisive steps, such as an interest rate hike, to rebuild reserves and restore confidence. Otherwise, rising current account deficits and possible debt defaults could tarnish a solid reputation for meeting foreign obligations.

“Locals don’t want to keep Turkish lira, they’ve been dollarizing and buying gold. Turks have hardly ever done that,” said Shamaila Khan, New York-based head of EM debt strategy at AllianceBernstein, which manages $600 billion. “That is why you need proactive policies because if you get to that stage where locals are unwilling to keep their money in the bank then you’re heading to a balance of payments crisis. That’s when the alarm bells will start ringing.” 

Some banks imposed fees on withdrawals this week, while the central bank has curbed cheap credit channels it opened to ease the coronavirus fallout. Yet while lira deposits now earn more than the 8.25 percent policy rate, their real return is negative with inflation at 11.8 percent.

Traders say such backdoor tightening needs to reach 11.25 percent to stabilize the lira, which has nearly halved in value since early 2018.

Market expectations have risen for a formal rate hike that economists say would reinforce central bank independence, even while it could slow economic recovery.

Politics may stand in the way.Erdogan, whose popularity has dipped this year, holds the view that high rates cause inflation, and sacked the last central bank governor for disobedience.

He said on Monday he hoped market rates would fall further.

But firms such as System Denim, which imports materials and makes clothes for companies like Zara and Diesel, are feeling the pinch from rising costs. Owner Seref Fayat said he converted his 4 percent euro-denominated loans to lira at 10 percent. “No need to take on additional FX risk,” he said. “I pay a higher rate, but at least I can see ahead.”