Boston, MA -- (SBWIRE) -- 12/24/2012 -- We have become ever more bearish on the French automotive industry. Passenger car sales declined 18.3% y-o-y in September, to 136,900 units. Over the first nine months of the year, sales in this segment declined 13.9% y-o-y, to 1,430,884 units. BMI forecasts a 12% decrease in passenger car sales in 2012.

We believe the weakness in the passenger car market reflects the absence of last year's vehicle scrappage scheme, and the underlying weaknesses in private demand. We maintain this forecast for now, but caution that further contractions in consumer spending could provide downside risks.

PSA and Renault's combined French workforce has shrunk by one-fifth over four years to about 155,000 workers. However, the auto industry as a whole - including suppliers, showrooms and garages - still provides close to 10% of the country's private sector jobs, according to official data.

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Domestic production will dwindle, both car makers say, until the government cuts employment taxes that have inflated overall labour costs to match Germany's. Luxury marques such as Volkswagen, Audi and BMW can stay profitable with higher labour costs because they command better prices. French president Francois Hollande, however, argues that 'labour costs are not the determining factor for French competitiveness'. BMI believes that ongoing economic weakness in France and Europe will continue causing French auto manufacturers to reconsider their business models, with shifts in production and strategic focus to high-growth emerging markets expected. This will have adverse effects on the French labour force.

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