The triggers of Competitiveness

The triggers of Competitiveness South versus North and the impact of the crisis A few remarks using the case of auto industry Patrick Pélata Conference in National Bank of Belgium, Brussels, December 6th

1. Renault & the auto industry in Europe, a few facts 2. Renault s strategy 3. North/South gaps on industry and some causes.. 4. What could be done? Page 2

Before the crisis, jobs were created in auto industry in Europe but... Employment in Automotive Industry in Europe 1995-2006 2 500 2 000 Europe 27 + 9% Jobs (th housands) 1 500 1 000 Europe 15 except Germany Germany -15% +22% 500 New European Countries +46% 0 1994 1996 1998 2000 2002 2004 2006 Page 3

Market cap. shows gloomy future for southern Europe carmakers Market capitalisation (Dec 2, 2011) by carmaker & by country of origin By country (B ) Market capitalisation (B ) on Dec 2, 2011 100 90 80 70 60 50 40 30 20 10 88 56 43 37 36 32 31 31 25 19 1 Japan 183 2 Germany 142 3 US 58 4 Korea 52 5 China 50 6 India 29 7 France 12 8 Italy 5 14 14 10 9 9 8 7 7 6 5 5 5 4 4 4 4 3 0 source Bloomberg Dec2,2011 Page 4

France trade balance for automotive industry goes really bad 60,0 INSEE, FRANCE 50,0 exports 40,0 30,0 20,0 10,0 0,0 imports B courants CAF- -FAB balance -10,0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Page 5

But Renault globalisation has been pretty successful meanwhile % of sales outside Europe 45 40 42% 35 30 25 20 Forecast: 60% in 2016 including AvtoVaz 15 10 5 0 11% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e Page 6

...leading to manufacturing shifts 3 000 000 Renault production by area Source: RENAULT 2 500 000 2 000 000 Russia, Asia, Americas +330k +730k 1 500 000 1 000 000 Western Europe( France & Spain) -1004k 500 000 Eastern Europe & Turkey & Morocco +604k 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e Page 7

High labour costs for blue collars France Renault France subsidiaries Spain Korea Slovenia Argentina Brazill Columbia Turkey South-Africa Roumania Russia Morocco India 4 36 32 29 25 21 18 18 18 14 Source RENAULT: hourly rate with labour taxes, 2009 100 82 71 57 Coût horaire chargé 0 20 40 60 80 100 120 France (usine Renault) = indice 100) Page 8

High labour costs for white collars, relatively higher with subsidies Source RENAULT: for product-process engineer in 2009 France 100 100 Yearly full cost Spain 84 100 Subsidies Brazil 73 114 Turkey Korea 50 48 117 128 Yearly working time Romania 26 108 India 16 124 0 20 40 60 80 100 120 140 Indice 100 = France Page 9

2. RENAULT s strategy 1. Keep in France high added value manufacturing: LCVs, upper end of the line-up and EVs 2. Slovenia, Turkey, Romania and Morocco 3. Logan platform cars: Dacia brand in Europe, Renault international weapon 4. Alliance with Nissan and strategic partnership with Daimler 5. Innovation breakthrough with EVs 6. A better use of the french innovation support system: CEA, MOVEO ( pôle de compétitivité ), Grand Emprunt 7. Better inter-companies cooperation with PSA & suppliers: VDA as a benchmark Page 10

Logan/Sandero, a net positive impact on french economy Net impact: ~ 300 M Source: RENAULT, 2010 450 M 225/285 M Profits & taxes 515 M out of which.. 285 M manufacturing & logistics 125 M engineering 105 M marketing & others Page 11

3. North/South gaps on industry and some causes.. 1. France industry added value now among the worst in Europe France = UK (16%) << Europe (22,4%) << Germany (30%) 2. French industry loses market share in w-w trade much more than Europe 3. Labour costs have diverged 4. Labour taxes count for ½ 5. German industry has better outsourced basic manufacturing goods 6. Industry profits heavily down in France / Germany 7. Industry R&D effort goes down / Germany Page 13

Germany/France labour cost evolution has diverged Page 14

Labour taxes is a strong differentiator between North/South Europe Profit taxes Labour taxes Other taxes Total Tax ratio In European Union Source: Paying Taxes 2011, the global picture. World Bank, IFC & PWC Page 15

Example of the impact on a car full production cost For an average car sold 14 000 The gap between - 100% developed, invested and manufactured (including purchased parts) in France - 100% developed, invested and manufactured in Eastern Europe is 1400 ( 10%!) out of which: - 400 net wages - 250 taxe professionnelle now reduced to 200-750 other labour taxes Source RENAULT, figures published in Etats Généraux de l Automobile, Janvier 2009 Page 16

Don t forget another driver of labour costs: real estate prices Spain France UK US Germany Page 17

German industry has outsourced basic manufacturing goods sooner and better than France industry Page 18

Companies marginal profit rate was already poor before the crisis Source: Rapport des Etats Généraux de l Industrie (2010) Page 19

And worst evolution in Europe was in France, Italy (before the crisis)... Source: Rapport des Etats Généraux de l Industrie (2010) Page 20

Companies R&D effort diverges France / Allemagne..no more compensated by public spending on R&D Page 21

4. What could be done in France (South Europe?)? 1. Labour taxes reduction 2. Ease industry restructuring 3. Support «delocalisation of basic manufacturing goods» close to Europe 4. Continue to improve the innovation eco-system 5. Better inter-companies cooperation within a branch 6. Ease real estate offer Page 23

Thank you