France will lend €6.5 billion to three major motor manufacturers in exchange for a pledge to keep French car plants open, President Nicolas Sarkozy said today.
Renault and Peugeot Citroen will each receive €3 billion, while Renault Trucks, which is owned by Volvo of Sweden, will receive €0.5 billion, the president announced following talks with car manufacturers.
'This is not a gift. It is not a subsidy. It is a loan offered at an interest rate of 6%', the president said as he announced the measures, to run over a five-year period.
Sarkozy also announced a doubling of state aid to car industry suppliers, who will receive €600m in a bid to protect the key sector - which employs one French worker in ten - from the global economic storm.
France will also double to €2 billion a bail-out package for the financial services arms of Renault and Peugeot-Citroen. Sarkozy said the loans would allow France's two leading car manufacturers to 'prepare calmly for the future'.
'Renault and PSA have made a commitment to close no sites over the duration of the loan and to do everything to avoid redundancies,' he said. Peugeot Citroen responded by announcing it would keep all of its French production sites open, and would not lay off French staff despite the slowdown.
The loan offer came as Renault's international partner Nissan announced it was to cut 20,000 workers worldwide and pull out of a joint project with the French firm in Morocco, where they were due to open a large plant.
Sarkozy has made protecting France's iconic industries the central plank of his supply-led plan to ride out the global economic slowdown, but he will have to tread carefully to avoid triggering a row over protectionism.
Already last week, he angered Eastern European governments by suggesting that Peugeot should close a plant in the Czech Republic and bring production home to France, where many factories are under threat.
Last week, France's junior industry minister Luc Chatel said Sarkozy would ask any car companies that receive state aid to 'commit to making investments and locating production plants in France.'
This provoked a rebuke from EU Competition Commissioner Neelie Kroes, who warned Paris against protectionism.
Other European countries are working on plans to support manufacturing, but France is unusual in concentrating on measures to boost investment in firms rather than consumer spending.
France has a cash bonus to persuade motorists to trade in old car models for new, but the bulk of state aid to the sector will flow directly to the two main firms and their suppliers.
Since the global downturn began to bite, both Renault and Peugeot have slashed production and shuttered plants, sub-contractors have closed and hundreds of workers have accepted redundancy offers.
