The financial abstraction: side effect of long term industrial restructuring: insights from the PSA case

Type de publication:

Compte Rendu / Report



Compte rendu de la journée du Gerpisa, Number 263, Virtuel (2021)


Quentin Belot, ENS Paris-Saclay, IDHES

Texte complet:

The Gerpisa seminar was devoted to the question of the financialization of large automobile firms, based on a presentation by Quentin Belot, PhD in sociology from the École Normale Supérieure Paris-Saclay, and associate researcher at IDHES. How can we conceptualize financialization in the automobile industry? Should we talk about financialization or rather financial abstraction?

Stellantis recently replaced PSA. The PSA group was divided into three, between FFP (the holding company of the Peugeot family), BPI France (the financial arm of the French government) and Dongfeng (the historical partner of the Peugeot group in China). Belot's research is devoted to a critical analysis of the financialization of the economy and particularly of PSA. Financialization usually refers to the importation into the perimeter of the company of rationalities, instruments and indicators from the financial sphere. The implication is that the company is turned towards financial performance, towards actors outside the group. Industrial groups would become the "support" for financial investments. Is financial capital then an enemy of industrial capital?

For his thesis, Belot worked on the archives of PSA and the Banque de France and conducted interviews with company actors, senior executives (accountants, financial directors, holding company directors, etc.) and members of the Peugeot family.

What is financialization? In a way, everything is financial under capitalism. It is not easy to describe the specifically financial dimension of the economy. It is therefore defined by its macro-economic dimensions, but the definitions are extremely varied. We can distinguish between exogenous financialization, resulting from the development of financial markets, the emergence of new actors such as investment funds, the diffusion of socio-technical devices that make it possible to organize financial operations on the markets, etc. Shareholder value would be the center of this dynamic.
We can also distinguish an endogenous financialization as a mode of integration of large firms. The emergence of large groups would require the use of financial devices to translate the variety of industrial activities into a single quantity that can be understood by managers and the market. This in turn would influence the structure of firms' balance sheets and the profile of managers. There is great diversity in the use of the concept. For Belot, it therefore requires a critical examination.
We should abandon the narrative of a great break between the capitalism of the Glorious Thirty and neoliberal capitalism. In the automobile industry, we have seen a process of concentration. The vast majority of new vehicles are manufactured by a dozen or so large groups. This would result in a relatively modest financial profitability policy. We also note the existence (notably at PSA and FCA) of passive investment funds. Financialization is a heterogeneous phenomenon which cannot explain all the transformations in the sector. In a way, financial abstraction is consubstantial with the constitution of large groups and indispensable to their industrial reconfiguration. It is also an indispensable tool for the preservation of the patrimony of family investment funds.

In the 1950s, the Peugeot company had several divisions: Automobiles Peugeot, cycles Peugeot, etc. The company was not yet financially structured. The Peugeot family then had a patrimonial strategy that favored this financialization. In 1976 most of the company's capital was still owned by the Peugeot family. At the end of the 2010s, this share decreased when other institutional shareholders joined the company (the State and Dongfeng). It can be said that, despite these transformations, the control of the Peugeot family remains and contributes to the financial stability of the firm.  

Belot notes that there was an initial movement of financial abstraction in the group during the years of growth (1960-1980). In 1965 there was an industrial and financial reorganization, etc. The group that emerged was PSA, a holding company that owned Automobiles Peugeot, cycles, machining, credit, commercial activities, Gefco and real estate investment. How then to manage the financial control of this structure? We need to reorganize the structure upstream that controls the PSA holding. FFP is then placed at the heart of this financial reorganization process. It acts as the armed wing of the Peugeot family, but also as the interface with the financial markets. When PSA needed to raise new funds, FFP bought back shares that had been put up for sale in order to guarantee FFP's control over the PSA holding.

From 1981, a period of crisis begins. Between 1980 and 1985 the group has unprecedented losses. Jacques Calvet, CEO of the PSA group, implements a policy of cost reduction. At the financial level, the group must increase its capital: there is a reduction in the direct control of the Peugeot family. In 1989, the Peugeot family tried to bring in new investors (friends) into the capital. The FFP holding company had to be listed on the stock exchange.
The French government then asked the Peugeot family to diversify FFP, because the PSA group could not list its capital twice. The 1990s also saw the merger of activities (tooling, bicycles) and the creation of Faurecia (in 1997), which led to an industrial refocusing on the core business of assembly.

The crisis in the European automotive market in 2009-2012 also resulted in significant losses for the group. One of the decisions taken at the time was to internationalize the group more, to deconcentrate the risks associated with the European market (enter the American and Chinese markets). This crisis led to a recomposition of the capital of PSA, with the entry of Dongfeng and the French state. There is then an absolute tension of the PSA group at all levels towards financial profitability. From 2014 there is also a strengthening of the strategy of diversification of investment.

Throughout these transformations, there is also a restructuring of the upstream structure, FFP, with a change at its head and the hiring of a new team. The aim is to gradually dissociate from the automotive activity. We see a distinction between FFP and the PSA group from 2017. Economic downturns affecting the PSA group would also affect FFP, hence the latter's interest in diversifying its assets in order to dissociate itself from the PSA asset. Thus, since 2002, there has been a strong acceleration in the diversification of FFP's portfolio as a response to PSA's patrimonial and control problems. But these developments are also a response to industrial problems.

Discussion by Bernard Jullien (GREThA): The question of financialization has not been treated much by Gerpisa. But we know that it is not a bulldozer that will impose itself on industrial logics. Similarly, financialization does not apply only to the last 30 years. There is no incompatibility between this form of financialization in the 1960s and contemporary financialization. It is therefore not guilty of all the evils that are attributed to it. In the 1980s and 1990s, certain production and innovation logics were compatible with financialization.

But the question remains as to how finance has transformed the profession of manufacturer? The link between financing and financial issues is important. During the Calvet period, there were increases in capital, which led to a decrease in the control of the Peugeot family. The question of whether there is a parasitism of finance on the company still arises. For some, part of the difficulties of PSA in the years 2010-2013 would be linked to this. The Peugeot family would be a ball and chain at the feet of the company? In 2014, the dominant analysis was that finally PSA was going to get rid of the Peugeot family.

Other questions arise. Is electrification possible in the context of financialization? There is a real problem of resource capture by finance, and there is a problem of financial objectives with industrial policy.

Discussion by Tommaso Pardi (CNRS, IDHES): There is a whole literature that questions the 1980s rupture that would transform industries from the outside, with managers who would destroy the legacy of the Glorious Thirty. The automobile companies have carried themselves the financialization of their firms. In the 1980s and 1990s, finance will put pressure on the profitability of industrial activities. We see a change within companies: we no longer invest if it is profitable, but if it is profitable enough. We close down profitable factories, but not sufficiently profitable ones. We see how finance influences industrial decisions.
But finance also captures part of the value. This phenomenon is compensated for by the indebtedness of the automobile sector. For example, GM bought back too many shares and got into too much debt, which caused the group to go bankrupt. This capture of value by finance in a sector where margins are low must be taken into account.

The problem would be more to know how the balance of power of the different forms of financialization evolves, endogenous or exogenous. The automobile industry has managed this financialization. The holding companies have made strategic use of financialization. But there are also tensions between these forms of financialization.
We should also compare how different groups participate in financialization. We need to clarify empirically how groups contribute to financialization and at the same time are affected by it. Why have German firms adapted better to financialization? We need to better understand the logic behind financial investments. Do relocations of production respond to industrial or financial logics? To what logic does the restructuring of R&D respond? Does it respond to endogenous logics or to the advice of global consultants? What research program can be set up around these questions?

Quentin Belot: We are used to thinking in terms of financialization. I try to adopt a critical stance towards this concept. But, of course, this phenomenon has consequences for companies. But we can't see it only as the imposition of external logics on companies. At PSA, they have built two trading rooms, not to speculate, but to put operators who will act on the markets to better understand them and to better act on them.
These major transformations are concretely embodied in the games played by the players, which is not without creating tensions. The point is not to say that financialization does not exist, but that these transformations are interwoven with actors who move between different spheres.

Bernard Jullien:
Statistics are useful, but it is not enough to measure profit shares or the distribution policies of automobile firms. We need to study or understand particular episodes, hence the interest of case analyses, as you do. At Volkswagen there was a confrontation between analysts and managers. At PSA, the 2013-2014 episode raised similar tensions.

Quentin Belot:
There is no single indicator that allows us to evaluate financialization. We think that dividends allow us to understand it. However, dividends have been falling lately, can we say that there is less financialization? Not necessarily. This indicator says nothing about shareholding. You have to look in detail at the evolution of the shareholder structure over time. This allows us to understand the real control over the firm.

The financial dimension is a constitutive dimension of the automobile industry, it is not a phenomenon that appears late. It appeared at least as early as the 1920s, and we can see a dichotomy between industrial expansion and a financial conservatism that sought to protect itself from financial capital, i.e. the big banks. In France, it was the Crédit Lyonnais that was a fundamental partner. 
This question of control is central to what you say about financialization. The other element is the internationalization of groups. Renault asked the French state to create a holding company in Switzerland in order to internationalize its investments. These questions must of course be historicized.
We can also compare the financialization of PSA with that of the Fiat group, another family-owned group. What is interesting is the opposition between financial and industrial logics, the question of resource allocation. Your presentation shows that very early on in PSA, players emerged to study the markets and also to influence them.
PSA hit rock bottom in 2012. Then Tavares put the group back on its feet. New faces are also being put in place. How then do the different industrial and financial logics come together? How do the financiers and those from the "hard" manufacturing jobs work together?

Quentin Belot:
The arrival of Tavares was accompanied by the promotion of people with a "group engineering" profile. For them, the problems of financial profitability must be anchored in the terrain. How does this translate into production? With a major cost-cutting drive. In terms of industrial policy, we have to play on the flexibility of the workforce.
The reorganization of 1965 replaces the need to be well regarded by the financial community, banks and competitors in particular.
Finally, one must bear in mind the family logic of Peugeot, which is fundamental in the financial transformation of the group. But, beware, one must take into account transformation schemes at different levels or tiers that are relatively autonomous.

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