Europe debates government aid to ailing companies France's Renault is success story

June 27, 1993|By Ian Johnson | Ian Johnson,Staff Writer

PARIS — Paris--A mile up the Seine River from its once-famous Billancourt auto works, Renault's stylish new headquarters exudes pride and self-confidence. Its new line of cars is popular across the continent, its engines power the prestigious Formula 1 world driving champions and, alone among European automakers, the company made a profit last year.

Renault's recent success caps one of the great turnarounds in French industry. Only a few years ago, the automaker was hobbled by mismanagement and headed for bankruptcy. But during the 1980s, an aggressive management team adopted lean production techniques and even closed the Billancourt works.

The government did its part too, pumping in $2 billion to pay off debt and closing markets to better-made and cheaper Japanese imports. The startling result: 10 years after being pronounced dead, Renault may be Europe's best automaker.

Despite that success, Renault has become a difficult case for the European Community to explain. While claiming that intervention is passe, the EC's appetite to intervene shows no sign of diminishing -- especially as the community's unemployment rate rises toward 12 percent.

The community's official line: Tight finances and the development of the European open market, which took effect Jan. 1, mean that troubled companies will be allowed to fail. "We know we only have a few years [left of protective tariffs] and then we'll have to withstand competition from the Japanese without any help," Renault spokeswoman Christine Rahard said.

Still, many view the aid to Renault as a sensible example of government intervention that saved an important company. European governments often cite Renault as they hand out huge subsidies to their industries -- $40 billion between 1988 and 1990, according to the most recent statistics available.

And just last week, EC Chief Executive Jacques Delors suggested stimulating telecommunications, computers and other high-tech industries with $8.3 billion to start and as much as $13.2 billion in subsequent years.

"The debate in Europe is far from over as to how much of a role the government should play in the economy. Many are afraid that too much competition will hurt Europe and leave it without any industrial base," said Benoit Parisot, an economist with Banque Indosuez.

The outcome of this debate over the state's role in European economies matters to Americans -- Europe takes nearly a quarter of U.S. exports and, in contrast to Japan, the United States runs a trade surplus with the 12-nation European Community. If EC intervention does not decline, it could trigger trade disputes -- such as the recent spat over bidding on government telecommunications contracts -- that would cost many Americans their jobs.

The government's strong role in Europe has other lessons for the United States, especially as some in the Clinton administration call for steps to preserve the U.S. industrial base. Although Renault is an oft-cited example of successful government intervention, the continent also is inhabited by white elephants that have consumed vast resources without producing profits.

In Paris' La Defense commercial district, for example, the Groupe Bull computer company is still laboring to turn a profit despite years of government aid. The company, which owns Zenith computers and last week announced a 19.9 percent stake in California-based Packard Bell Electronics, has lost $3 billion over the past three years, including $892 million last year.

Meanwhile, the French government has fed Bull $3 billion in subsidies over the past 10 years, including $450 million earlier this year. Other forms of aid, including mandatory purchases of Bull products by government agencies and state-owned companies, also have helped.

George Grunberg, Bull's director of European cooperation, says the French government's help and the generous aid from Brussels are necessary if Europe is to be an economic power in the coming decades. "We believe that if we want to control the strategic decisions, then we have to have European companies in fields like data processing."

This belief has led the community to budget $7 billion on research and development for the current five-year plan from 1990 to 1994. The funds represent nearly 5 percent of total civilian spending on research and development in Europe, up from 2 percent in 1984.

Mr. Grunberg concedes that European companies seem to have profited little from this growing mound of subsidies. But such failure shouldn't deter further subsidies, he says -- it simply means that even more aid is needed.

"Would we have been worse off without the help? Yes," he said.

Threat of competition

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