July 25, 2012 / 11:07 AM / 8 years ago

France offers modest aid to sickly auto sector

PARIS (Reuters) - France’s Socialist government, grappling with the imminent closure of a Peugeot car plant, presented a modest aid plan for the flagging auto industry on Wednesday, limited mainly to raising subsidies on electric vehicles.

Employees of PSA Peugeot Citroen demonstrate against the closure of the PSA Aulnay plant, in front of the company's headquarters as a meeting with Peugeot management and workers' representatives is held in Paris July 25, 2012. REUTERS/Gonzalo Fuentes

The aid plan is much less ambitious than a 2008-09 package under the last government, which included a popular cash-for-clunkers scheme. The new offering will increase cash incentives for buyers of fully electric cars to 7,000 euros (5,500 pounds) from 5,000 euros at present, the industry ministry said in a statement after outlining the plan at a cabinet meeting.

Subsidies on hybrid cars, made in France by Peugeot but also by Toyota (7203.T), will double to 4,000 euros.

President Francois Hollande’s two-month-old government is being tested by its first industrial crisis as unions vow to wage war over PSA Peugeot Citroen’s (PEUP.PA) plan to shut its Aulnay plant near Paris and axe 8,000 jobs in France.

However, the industry’s woes are by no means limited to Peugeot. European car sales fell almost 7 percent in the first half of the year, with France, Italy and Spain all suffering declines at, or near, double-digit levels.

German leviathan Volkswagen (VOWG_p.DE) is one of the few manufacturers to be weathering the deepening economic slump, thanks partly to its broad presence in lucrative markets such as China, the United States and Brazil.

The French government’s aid package will also free up 150 million euros in state-backed loans to auto industry sub-contractors, hit hard by the slowdown, and oblige the government to make a quarter of its car purchases electric or hybrids.

Hollande has pledged to return French industry to health and ward off mass layoffs, but depleted state coffers after three years of economic crisis are limiting his firepower.

Arnaud Montebourg, Hollande’s “Minister for Industrial Renewal”, will be under the spotlight as he outlines the auto plan the same day Peugeot posted a big first-half loss and workers protested at the Aulnay plant closure in 2014, the first car plant to shut in France for 20 years.

The subsidy rises, due to take effect at the end of the year, are aimed at boosting sales of Renault’s (RENA.PA) French-made “Zoe” electric car and Peugeot’s diesel-electric hybrids.

The market for environmentally friendly cars has barely taken off in France, despite existing incentives, with electric and hybrid vehicles making up only 0.2 percent and 0.8 percent respectively of new car registrations in the first quarter.

Toyota produces its hybrid Yaris in France, but the subsidies also benefit Japan’s Mitsubishi (7211.T), which makes Peugeot and Citroen’s small electric cars.

Peugeot has received around 4 billion euros in state aid in recent years.

Reporting by Guillaume Gilles and Julien Ponthus; Writing by Catherine Bremer; Editing by David Goodman

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