French government to provide 7 billion euros aid to manufacturers

The French government will provide up to 7 billion euros in emergency financing to PSA/Peugeot-Citroen and Renault in exchange for those manufacturers continuing to provide employment in their French factories during the global economic crisis.

PSA has confirmed it will use 3 billion euros of new, low-interest loans to develop fuel-efficient, low-emission vehicles and that this money will allow further development on a range of technologies, including stop-start systems, hybrid powertrains, plug-in hybrid vehicles and electric cars.

Renault, which will also receive 3 billion euros, said the new funding would enable it to withstand the crisis and finance its strategic projects in France, particularly the development of vehicles with zero or very low CO2 emissions.

The five-year loans will be granted at 6 percent interest, well below rates the companies have been able to find on global capital markets.

Both companies will also have the possibility to borrow 500 million euros from government sources for their finance arms during 2009, in addition to a 500 million euro loan facility that was already approved last December.

The new government financing must still be vetted in Brussels to ensure that it does not violate European Union rules against state aid to industry.

PSA said it will launch one or more new models in each of its five assembly factories and will keep employment in France at current levels.

Renault also said it will build five new models as well as a new engine in its French factories by 2012. It also said a full electric vehicle would be developed in France once the necessary profitability conditions are in place.

French President Nicolas Sarkozy has said employment protection is a key condition of the auto sector bailout. Sarkozy also asked for a commitment from the carmakers to keep open their existing French factories.