The chairman of Renault tugged hard on a Cuban cigar when a recent guest asked if Europe's largest selling car maker would have to lay off workers and cut pay, copying American rivals' efforts to survive.
Looking out from the wide windows of his eighth floor executive dining room, Bernard Hanon replied, "Thank God, we have not reached that point yet."
Indeed, after 1980 profits of $106 million and losses last year believed in the $150 million range, Renault is likely to turn a profit in the second half of this year, according to the 50-year-old chairman.
Still, perhaps never before in its 37-year history as France's premier nationalized manufacturing enterprise has Renault's task appeared so daunting.
A social laboratory even under previous Conservative governments, Renault remains the year-old Socialist regime's model for the vast sector it has nationalized.
That means nationalized companies are to experiment in labor relations while investing efficiently and staying ahead of the ever more challenging international competition in areas as varied as chemicals and pharmaceuticals to fiber optics and heavy engineering.
Nationalized in 1945 because of its owner's wartime collaboration with the Germans, Renault since has had much to be proud of:
* 6.5 percent of world car production;
* The largest market share in the 10 European Common Market countries;
* More than half of its production exported;
* Plants in many overseas countries;
* A record of independent management despite hundreds of millions of dollars of state aid over the years.
Indeed, after years of paying no taxes--an advantage its French competitors have criticized--Renault in 1976 started repaying the state via dividends.
Its most controversial overseas venture is in the United States, where later this year it plans to start daily production of 400 light, front-wheel drive Alliance cars in the Kenosha, Wis., plant of its partner, American Motors.
Renault owns 46.9 percent of American Motors and has invested $350 million so far in its U.S. venture in hopes of capturing 3 percent of the market as well as selling in Canada and Mexico.
In view of the current depressed American market, Hanon is happy with the timing of the French-designed Alliance's launch, and estimates the break-even point at between 500 and 550 cars a day.
The boss of Renault since last year when Bernard Vernier-Palliez became ambassador to Washington, Hanon figures the Socialists' reforms have added 4 percent to his wage bill.
"We have to live with it," he said, ticking off some of the reforms: the fifth work week of paid holidays; the hour reduction in the previous 40-hour work week; automatic advancement from blue collar ranks after five years employment, and other costly measures.
"Our room for maneuver is limited because we are in the midst of very tough international competition," Hanon said.
Speaking in fluent, if somewhat accented English, Hanon, known as "the American" at Renault because of the many years he lived in the United States, made it clear that costs are his "biggest nightmare."
He needed no reminding that he was speaking toward the end of a strike at the nearby Flins plant that both government and management had opposed. The mostly immigrant "guest workers" eventually went back to work after having cost Renault some 27,000 cars in "lost" production and having won most of their demands. That could set off similar strikes in other Renault plants and at other firms as well, for such is Renault's symbolic importance in French industry that any concession wrung from its management is often taken up by workers and trade union leaders elsewhere.
Even as polished a performer as Hanon conceded that the trade unions, which traditionally have played a leading role in Renault, had been "made aware" of drastic measures American car makers had accepted to keep their companies alive. American Motors itself reduced its work force.
But with the communist-dominated General Confederation of Labor, the country's largest labor union, becoming increasingly strident in its demands--while the Communist Party itself generally honors its contract as junior government partner--Renault is in the front lines on the labor front.
Rightly or wrongly, trade union leaders and some doctrinaire Socialist parliamentarians have interpreted the new nationalization law as leading to a guarantee of jobs in the nationalized banks and five giant industrial concerns taken over earlier this year.
From President Francois Mitterrand on down, the government has opposed these suggestions. The official line is that the nationalized sector must be competitive, respect corporate balance sheets, yet also take into account the need to experiment. Confusion does exist, however, since the Socialists have made the fight against unemployment their primary objective. More than 2 million workers are without jobs.
Now that the state controls 90 percent of the banking sector, the official theory goes, the government should provide financing to revitalize the economy, which in the past suffered from haphazard corporate planning and insufficient industrial investment.
But critics have warned of featherbedding, lack of incentive and declining production, and the risk of growing absenteeism.
Hanon swears that Renault's investments have honored the principles of a program laid down in 1976. "We didn't lift the foot from the accelerator for a second," he said. He insisted that had Conservative president Valery Giscard d'Estaing been reelected a year ago Renault's investment plans "would have been absolutely the same."
Unlike American rivals whose feast-or-famine capital investment varies from 2 to 12 percent of sales according to the economic climate and their "obsession with quarterly results," Renault invests 6-9 percent in good year or bad, Hanon said.
But although the Socialists soon after taking power did authorize massive dollar outlays to buy control of several American enterprises, financial specialists doubt that the French treasury is in any position to do so today, at least not on the same scale.
All but two of the newly nationalized enteprises--Rhone Poulenc and Pechiney-Ugine-Kuhlman--are massive money losers and all five groups need major injections of government capital to maintain their international competitiveness.
Logically, Renault might well be worrying about its future ability to tap government funds given the growing competition among nationalized enterprises.
This year Hanon said Renault planned to invest about $1 billion, most of it self-generated but with some 20 to 30 percent raised by financial market borrowing and state aid.
In all but two of the last 20 years Renault has received "capital advances," or government funds, and Hanon said there was nothing to suggest Renault will be passed up this year.
Renault, he said, had not felt "any resistance in the international financial community," where it has often borrowed in the past.
Indeed, far from fearing the implications of nationalization, Hanon said the newly named chairmen of the five industrial groups have been asking him for advice. "Yes, we talk," he said, "about how to raise capital and relations with the state."
Hanon is firmly convinced of the Socialists' logic in nationalizing and reiterated the standard government line that state economic intervention goes back to government ministers Sully and Colbert in the 16th century.
Moreover, he and many of the newly nationalized firms' bosses have known each other for years. "This is a small country," he said.
For him, Renault's secret for success was the excellence of its engineering, conservative investment policy and daring.
But its emergence as the biggest French car maker--with 40 percent of the market--owes something to the consistent government policy limiting Japanese imports to 3 percent of the French market, now reduced "voluntarily" to 2.5 percent.
In that, at least, the otherwise free-trading Renault shares a general view held by the Socialists that the nationalized sector must lead the way to what it calls "the reconquest of the national market" and what others have called not-so-disguised protectionism.
Critics are convinced that, in order to succeed, the nationalized sector may be tempted to freeze out strong U.S. and other foreign sales in fields as varied as computers and electronics, biomedical products and pharmaceuticals.
Oddly, the government would like France to become "the Japan of Europe" thanks to massive state-bankrolled research and development that could pay off in the mid-80s.
If Renault is any yardstick, the government may confound its critics.