Renault’s Morocco Factory: When Globalization and Politics Collide

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Renault / EPA

The vehicle production line at the new Renault-Nissan Alliance plant in Tangier, Morocco, Jan. 17, 2012.

It’s often said that in both business and politics (not to mention humor), timing is everything. And it was probably that critical element of delivery and context that caused the big news Thursday from French carmaker Renault to go like the proverbial lead balloon. With themes of job creation and re-industrialization of the increasingly off-shored French economy dominating campaigning in France’s approaching general elections, Renault’s inauguration of a massive factory in Morocco generated more boos than cheers—indeed, almost no applause at all.

Adding insult to the injury being voiced by French politicians on the left and right alike over the plant opening near Tangiers is another poignant fact: the French state still owns 15% of the formerly nationalized Renault now looking to boost profits by using inexpensive Moroccan labor. At least French taxpayers can expect to see their portion of the higher dividends likely to result from what in a fully globalized business world seems like a logical (if politically tone deaf) move by Renault. However, the company may see the orders for the traditionally Renault–heavy fleets of government cars drop off seriously for a while.

Thursday’s launch of the major new Renault initiative was not the mass celebration executives might have hoped for. Response to the inauguration of the $1.3 billion, 300-hectare plant in the Tangiers suburb Meloussa ranged from subdued grumbling to piercing indignation—particularly from politicians on both sides of the political divide facing presidential and legislative elections this spring. With unemployment nearing 10% as the French economy grinds down toward recession, proposals on job creation, re-industrialization, luring off-shored companies back home, and even patriotism-rousing “Buy French” campaigns have crowded to the top the list of positions staked out by leading politicians on the left and right alike.

That rush to offer a solution to France’s economic decline has taken on a feeling of do-or-die panic.  President Nicolas Sarkozy is even seeking to push through a risky reform to shift employer-financed social charges onto consumers through increased value-added taxes. That’s certain to be an unpopular move initially, though Sarkozy it will mechanically increase the competitiveness of French labor and goods vis-à-vis imported competition, and eventually lead to a rise of salaries. Critics say the initiative will produce nothing but another gift to companies at the public’s expense, but the realities of that proposal and many others similarly being pitched is their political backers are probably less concerned about their short-term effectiveness—and far more intent on looking as though they’re coming up with solution to France’s woes before voters take to the polls.  Which is exactly why the sight of one of France’s leading industrial companies creating around 3,000 direct jobs—and 6,000 via suppliers—in North Africa as France frets over unemployment has infuriated some politicians to the point of semi-speechlessness.

“When you see a public company, with the state as a shareholder and represented on its board, and it has approved this off-shoring…” stuttered an indignant, disbelieving Nicolas Dupont-Aignan, a Euroskeptic conservative presidential candidate calling for the return to more protectionist and nationalist policies.

“This low cost race is one we can not win,” echoed former Prime Minister and conservative presidential candidate Dominique de Villepin—who then compared Renault’s commercial logic in moving to Morocco with what he says has been the generally destructive, financially-focused management of the French economy under arch-enemy, Sarkozy. “We must change the French economy, and the direction of French industrialization.”

With shots of Renault CEO Carlos Ghosn leading inauguration festivities aside Moroccan dignitaries featured on TV screens across France Thursday, the barrage of hostile response from campaigning French politicians had to be expected. It also didn’t help that media reports noted that an average monthly salary in the Moroccan plant will be about $325. Meanwhile, coverage warned that annual output at the new facility could increase to as many as 400,000 cars sometime in 2012; Renault’s two main French operations now produce 450,000 units per year, versus over a million half a decade ago.

Were that not bad enough, French media also underlined that as part of the agreement to get Renault to invest locally, the Moroccan government has agreed to waive taxes for the first five years of the factory’s operation—including all duties on cars exported to foreign markets. It all seems to tally up to a win-win deal for Renault at the expense of French workers, jobs, and even France’s wider economy.

As always, however, things look a little different after a closer look. Suggestions Renault is brazenly moving French jobs to Morocco to produce cars more cheaply–and then sell them at lofty European prices back in France to newly jobless people—are off target, when not unfair. The new Meloussa factory is designed to produce three low-cost cars under the Dacia brand. Those will be similar to the basic, inexpensive, but highly successful Logan model that sells for as little as $7,000 since they began rolling from Renault’s Dacia-acquired plant in Romania in 2004. The new Moroccan-produced Lodgy model also is designed for developing markets where revenues remain relatively modest, and demand for option-free but affordable new cars is high.

Really high. When Logan proved so successful in rapidly expanding markets in ex-communist central European nations, Renault took production and sales of the car to Latin and South America, Russia, India, and Iran—and did booming business. The company is now both replicating and diversifying that sub-economy car innovation by launching the three Lodgy models out of Morocco: solid but rather rudimentary rides that European consumers accustomed to Renault’s option-stuffed middle- and up-market cars wouldn’t be inclined to buy anyway. In other words, like the Logan, the Lodgy is meant to be an addition the Renault line in both geographical, consumer, and employment terms, not a subtraction from it.

“This isn’t something that will be to the detriment of France,” Ghosn told French radio RTL ahead of his Moroccan trip. “Contrary, [it] will provide work in France…for our engineers, in our engine plants, and for our suppliers. And while that’s happening, we’re focusing our higher value production in France, like our electric cars and batteries.”

Of course, French union officials point out that the supposed separation of emerging and matured market distribution isn’t as complete as that. After winning millions of less affluent customers with the Logan elsewhere, Renault eventually began selling that model in Western Europe, too. True, it has sold nowhere near the numbers there that the company’s more refined models have—though enough to prove some drivers in France, Germany, Belgium and elsewhere will indeed make their purchase choices based on price rather than relative luxury—or country of origin.

Be that as it may, Ghosn assures the opening of the Tangiers factory will prove beneficial to Renault, Moroccan employees, and future customers without taking anything away from France or its economy. And as the manager of a globalized company, he may feel that he has no option but to strike out into less expensive labor markets in seeking to make Renault grow. If his Moroccan Lodgy proves as successful as the earlier Logan, Ghosn’s shareholders will applaud this week’s move loudly. Awaiting that, however, he’d better get used to hearing raspberries from French politicians—at least until the election season ends in June.