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France gears up for auto industry summit

(Agencies)
Updated: 2009-01-20 14:16

PARIS - France is considering "several billion euros" in extra help for its auto makers, a top French official said Monday, ahead of a meeting with auto industry chiefs on how to stem collapsing car sales.

Industry Minister Luc Chatel told journalists the government is considering helping auto makers ride out the credit crunch by covering up to 50 percent of their financing needs. Any help will be dependent on guarantees against factory closures, he said.

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"We have made a political choice which is to say we want to keep our automobile industry," he told reporters from his office at the Finance Ministry.

The government is hosting a meeting on Tuesday with French car makers, suppliers and labor unions to discuss how to cushion the fallout from the economic crisis and credit restrictions.

French car maker Renault SA reported a 28.5 percent drop in vehicle sales in December as customers shied away from big ticket purchases. That led to an annual slump of 4.2 percent in 2008, which compares with a 4.9 percent fall at cross-town rival PSA Peugeot-Citroen.

The auto industry is one of France's major employers, providing jobs for around 10 percent of the French work force.

Peugeot-Citroen and Renault have announced layoffs and factory closures to try to cope with a collapse in demand, and both have also reported difficulties in raising credit.

In response to the crisis, the government already has announced a series of measures, including a 1,000-euro bonus for French consumers who trade in old cars for new lower-emission models.

France also made 1 billion euro in low-interest loans available to the finance arms of both French car makers, which help customers finance car purchases. That plan could be extended.

Chatel said the government, which owns 15 percent of Renault, is considering raising its ownership in French car makers.

Besides short-term financing needs, Chatel said the French government is seeking to halt a decline in competitiveness and the shift of production abroad in the long term.

Taxes add around euro300 ($395) to the cost of a vehicle made in France, he said, noting that the cost of making a car in Eastern Europe is only a few hundred euros cheaper than at home. Unions also will be asked to debate extra flexibility, he said.

Finally, Chatel said the government is seeking to encourage the development of electric cars and other green technologies.

EU Industry Commissioner Guenter Verheugen, who will attend Tuesday's meeting in Paris, said last week that ailing automakers will be helped with some loans but warned them not to expect a free ride in state aid to overcome the financial crisis.

Carmakers can use close to 10 billion euro ($13 billion) for loans from the European Investment Bank to keep the industry in step with technology and other long-term projects. The EU is also discussing measures to boost sales, including better taxation, scrapping incentives and more public procurement.

Funds from the EIB can be used for long-term projects like clean cars, to upgrade facilities in poor regions and help small companies.

Verheugen said that once Barack Obama is sworn in as US president, the EU will look for a trans-Atlantic initiative to tackle the automobile crisis at a global level.

In the United States, two of the Detroit Three automakers, General Motors Corp. and Chrysler LLC, have survived largely thanks to billions of dollars in federal loans.