France softens plan to deny aid to carmakers

Publication date: 26 February 2009

France softens plan to deny aid to carmakers

France is prepared to abandon its insistence that carmakers formally pledge not to close factories in the country in return for a €6bn ($8bn) state-loan package. Instead, the government will rely on the “moral obligation” of PSA Peugeot Citroen and Renault not to shut sites after taking government money, a person with knowledge of the situation said. The softer stance came as Brussels pledged to take “a proactive stance” to support the industry in coping with the economic slump, although senior officials continued to insist they would not endorse protectionist measures. The French government is hoping the compromise will help to secure the approval of Brussels for its five-year loan package aimed at bolstering two of the country’s most important exporters in an industry that accounts for about 10 per cent of total employment.

The “no closure” condition will not be written in “black and white” into the measures, according to the person familiar with plans. Nonetheless, the carmakers will be aware that closing factories would be frowned on by Paris. The insistence of Nicolas Sarkozy, the French president, that public aid could not be given to companies that planned to close factories in favour of production abroad sparked accusations of protectionism throughout Europe. But government officials insist it would have been difficult to win public support for state aid to the car companies if taxpayers’ money was used to close factories and cut French jobs.

France launched its aid plan this year after warning Europe it would go ahead alone in the absence of a co-ordinated plan. Francois Fillon, prime minister, even took Günther Verheugen, EU industry commissioner, to task for Europe’s slow reaction to the crisis. But on Wednesday Mr Verheugen said the Commission was “committed to defend” the millions of jobs in the automotive sector, supply chain and aftermarket. “We have already identified the needed support and now we have to concentrate on rapid delivery in a coherent way,” he said. He promised to co-ordinate efforts with member states and make sure “the broad range of available support tools” was applied effectively. He also said the European Investment Bank was expected to approve €3.8bn ($4.8bn, £3.4bn) of automotive sector projects next month, with a further €6.8bn in the pipeline. “We hope to satisfy the needs of carmakers given that European legislation has decreed the need for investment,” he said. Under the terms of the French package, carmakers are being asked to suspend the condition that suppliers source a significant percentage of products in low-cost countries. France’s car supply industry has argued the condition hinders their ability to tender.

Source: Financial Times