Monday 17 June 2019

Renault-Fiat merger talks debacle gives Macron a lesson in capitalism

French President Emmanuel Macron. Photo: Reuters
French President Emmanuel Macron. Photo: Reuters

Lionel Laurent

The hunt for a scapegoat for the collapse of the merger talks between Fiat Chrysler and Renault is in full cry. There's furious leaking on all sides: The Italians blame the French, the French blame Fiat and the reluctance of Renault's partner Nissan to bless the deal. A lot of people blame Bruno Le Maire, Emmanuel Macron's finance minister, whose eleventh-hour request for more time to bring Nissan on board was the final straw for Fiat.

While it's too simplistic to lay all of the culpability at the feet of Le Maire and Macron (did Fiat really think it could stitch together a huge, politically sensitive cross-border car deal in just 15 days?), it has become worryingly common for overconfident Parisian technocrats to slip up on problems of their own making.

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There are lessons here for Macron when it comes to handling France's web of government holdings, including its 15pc ownership of Renault. For a start, French politicians would do better to align their rhetoric with reality. Promising to fight for every industrial job in France, as Le Maire has done, is a great message for voters; but in the confines of a boardroom, or a shareholder meeting, it's hard to back up such talk with only a 10 or 15pc equity stake. Macron himself acknowledged back in 2016 the limits of the state in stopping management from taking decisions:

He's less upfront these days. Beyond the blunders over the Renault-Nissan alliance, Air France-KLM and now Fiat - all examples of Paris overplaying its hand when seeking to exercise control - there's also deeper confusion over what purpose state investment actually serves.

There are too many competing strategies at work across too many state-backed firms (France has 1,800), from building national champions, to protecting jobs, to blocking foreign takeovers.

This does nothing for the performance of these companies: The return on equity of most French state holdings averaged 2.8pc between 2010 and 2015, versus 10pc for the SBF 120 index of the country's most actively traded stocks.

Nor has state intervention done much to avoid the blight of de-industrialisation. The share of manufacturing in the French economy fell from 19pc in 1975 to 10pc in 2015. There needs to be a rethink on exactly why and when taxpayer funds should be used. Restricting it to companies facing crisis or bankruptcy, or those with technology worth subsidising, would be one idea. There also needs to be some faith in management's ability to just do its job. It's true that in this case Renault's new boss Jean-Dominique Senard may have been too hasty in pushing the Fiat deal. But the state is never far behind in these situations.

Too often, an antagonism sets in between the state and management, usually over compensation, strategy or political meddling. You'd have to question the very idea of having a state investor. Banker David Azema, who for a time had the job of overseeing the French portfolio of holdings, said in 2017 that it was impossible for the government to be an effective shareholder. The business cycle is completely different to the electoral cycle.

On top of the pressure of politics, and the confusion of goals, French state shareholders are generally too risk-averse and prone to procrastination. The Italians will no doubt agree.

Macron really needs to get back to his eminently sensible 2017 campaign promise: Sell down more French stakes and reinvest in low-carbon technology.

Until something changes, expect the international finger-pointing to continue.

Bloomberg

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