France Inc. maintains supply chains despite fallout from pandemic

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(Bloomberg) – The coronavirus pandemic can change a lot about the functioning of French auto parts maker Valeo SA, but its sprawling global supply chains will not be one of them.European leaders have spoken of bringing the manufacturing sector back to member countries to avoid the type of crises that quickly followed the initial outbreak in China. The closure of auto parts factories has pushed European car manufacturers to scramble to replace assembly lines. Europe’s dependence on foreign-made health care protective equipment, such as masks and gowns, has also become very clear.

However, for business leaders such as Valeo’s CEO Jacques Aschenbroich, shortening logistics routes is not part of his plan to save the manufacturer from 8 million components a day from the deep crisis of the industry that has pushed European car sales to record levels.

“Our end customers and our spare parts customers are not ready to pay more if our supply chains were outsourced,” Aschenbroich said on Sunday at the Aix-en-Seine economic conference in Paris. “So if none of them assess the risk, there is no way the supply chains will be outsourced.”

Rather than putting them under surveillance, “we should pay tribute to these supply chains that have shown extraordinary resilience after withstanding successive shocks like Fukushima, the floods in Thailand and now Covid-19”, a added Aschenbroich.

In the wake of the global pandemic, which has caused the steepest recession in nearly a century, the European Union has proposed a recovery plan of 750 billion euros (843 billion dollars) which could aim to guarantee a “Strategic autonomy” in key sectors and enhanced value. within the EU.

European Central Bank executive member Luis de Guindos and Dutch central bank governor Klaas Knot have independently argued that companies should consider moving parts of their supply chains closer to home even if it meant higher costs.

At the weekend conference in Paris, ECB President Christine Lagarde said the crisis would lead to changes in the manufacturing sector, with an estimated contraction in supply chains of around 35% and an increase industrial robotization from 70% to 75%.

Evidence on the ground suggests that a massive return to Europe is unlikely in the short term due to the ever increasing importance of China and the difference in manufacturing costs.

“I don’t see massive outsourcing,” Rodolphe Saade, CEO of CMA CGM SA, the third largest container transport company in the world, told the conference. As the carrier sees larger “intra-regional” volumes in Asia and Europe, he said consumers “will continue to buy TVs and other products made in China because they are much cheaper to build.” than in France and elsewhere in Europe ”.

To counter Asian rule, politicians may have to use harsh policies and subsidies to convince companies to get on board, as was the case with electric car batteries. France and Germany have joined forces to revive a European industry.

“We have succeeded in concluding an agreement between governments – France and Germany – and companies to take up the challenge together,” said Patrick Pouyanne, director of Total SA on Saturday. “This requires significant subsidies. ”

“We decided it was worth taking this risk,” he said of the oil giant’s participation in the project. ” Why? Because a lesson for companies like us is not outsourcing, but the diversification of supply chains. We know the geopolitical risks and the need to diversify. ”

The political effort to bring the industry home is particularly intense in France. New Prime Minister Jean Castex spent part of Saturday in a semiconductor business where he stressed the need to move more industries to save jobs. French President Emmanuel Macron has tied around 8 billion euros in aid to the struggling automobile industry to increase domestic production.

“The industry fled the country because we didn’t deal with it,” said Eric Lombard, director of the state-controlled financial institution Caisse des Dépôts et Consignations. “Last year, for the first time in 20 years, more factories opened than closed in France. It is the result of proactive measures. ”

© 2020 Bloomberg LP



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