French cars are in top gear

Over the Channel, public subsidy and good design has paid off

Why can't we have one of those, daddy? Why do our neighbours still have a big, shiny, home-owned, car industry parked in their drive, when we do not?

There are four, full-range, car-manufacturing companies left in Europe. Two of them - the Volkswagen and Fiat groups - are struggling to find their gears. The two others, cruising down the fast lane, are French.

Peugeot-Citroën and Renault, once by-words for protected and (in Renault's case) subsidised obsolescence, are in almost insolent good health.

In 1999, each of the French groups sold more cars around the world than in any previous year in their history. Renault sold 2,290,000 vehicles - 20 per cent more than they did five years ago. The Peugeot group sold 2,516,000 cars - 10 per cent up in one year.

The Renault Megane Scenic - the latest in a series of ground-breaking designs from the French company - is the third best-selling model in Europe, behind the Golf and the Astra. The little Peugeot 206 is exceeding all sales targets. The two factories assembling it - at Mulhouse in France and Ryton in England - are on triple, round-the-clock shifts. One-in-four of all the cars sold in Europe last year was French.

Ah yes, but aren't all those cars sold at a loss and subsidised by the French tax-payer? Not a bit of it; not any more. Peugeot-Citroën has never been subsidised directly by the French state. Its profits rose by 51 per cent last year.

Renault, which was majority state-owned until a few years ago, received hundreds of millions of pounds in tax-breaks and write-offs in the 1970s and 1980s. It has now been unsubsidised and largely profitable for a decade. Admittedly its £350m profit last year was 60 per cent down. This was largely because of the losses from its bold acquisition of a controlling share in the Japanese car firm, Nissan.

The worldwide success of French cars last year can partly be attributed to the low rate of the euro; but the same rate applies to Volkswagen and Fiat, which are struggling. The French car boom in the last few years is explained by good and innovative design; the rapid-fire production of new and successful models, based on large investment in research; and a determination to learn Asian lessons on reliability, automation and over-manning.

Renault and Peugeot's success is a paradigm of the explosion in the wider French economy (growth approaching 4 per cent this year). The British press and politicians like to mock the French, with their quaint suspicion of markets and belief in statist solutions. The mockery is sometimes justified: the French public sector often appears anchored in the 1970s. We should, nevertheless, look at the route taken by the French car industry in the last 30 years, and the decisions taken by the industry and French governments, and ask whether France took some of the right turnings and we took the wrong ones.

Successive French governments in the 1970s and 1980s would not consider allowing Peugeot and the (then state-owned) Renault to go to the wall. Hundreds of millions of pounds were invested in writing off debts, in Renault's case. Enormous political capital was invested in persuading the EU to negotiate a series of quotas, limiting imports of Japanese cars.

There were "indirect" subsidies such as grants to consumers to replace new cars with old and lower taxes on diesel fuel, when car makers invested in diesel engines.

The argument for preserving a native car industry (while steel, coal and textiles were allowed, Thatcher-like, to die) was never disputed in France. Like the air and space industry, like the nuclear force de frappe, the existence of a home-owned and controlled car industry was seen as one of the badges of a large, independent nation. Besides, the car industry, employed directly or indirectly, something like one in eight of those working in France. It was too big to be allowed to fail.

Many wasteful decisions were made. In the 1980s, rather than concentrate on the quality and price of the core product, both Peugeot and Renault tried to "buy" success through expansion and a series of disastrous acquisitions abroad. In the 1990s, faced with the expiry-date of the Japanese quotas, and EU restrictions on state subsidies, both companies have focused instead on getting the basics right. Tens of thousands of shopfloor workers have been laid off in early retirement schemes (still in progress).

A slimmer and fitter industry? Not exactly. The French car industry employs 2,200,000 people, which is nearly one in eight of the working population. The difference is that there has been a massive shift from blue collar to white collar jobs: from the shopfloor to research, technology and after-sales.

Jean-Paul Mercier, director of communications for the French automobile manufacturers' association, attributed the survival, and now the success, of the French industry to two factors. "Firstly, we took a long-term strategic view, an industrial view, rather than a short-term capitalistic view, which was partly because Renault was in the state sector, but it was also the prevailing ethos in Peugeot too. Secondly, we have changed our models rapidly and produced cars which anticipated the market, especially the shift from classic cars to the monospace."

A classic liberal economist would argue that state protection through the difficult years was ill-advised. Supporting a struggling industry handicapped the economy's capacity to create jobs. That explains why France, although more prosperous than we are, still has 2.5 million people out of work.

Yes but... France still has a car-industry: as a pole around which jobs can be created; as a centre of design excellence; as a flag-carrier for Frenchness. Wherever they are sold the Espace and the Scenic and Peugeot 206 say "France" in the way that the Mini used to say Britain.

Now the car industry is flourishing and the wider French economy is doing fine, creating jobs faster than any other large economy in the world. That is what the French call having the "buerre et l'argent du buerre": having your cake and eating it.