France unveils bailout of their auto industry

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PARIS -- Faced with slowing production and a raft of job cuts in the automobile industry, French President Nicolas Sarkozy Thursday announced a series of measures to assist the ailing sector and to entice buyers into showrooms.

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Speaking at a Renault SA's car assembly plant at Douai, in northern France, Mr. Sarkozy said that the government aid is conditional on automotive sector companies not transferring their businesses outside of France.

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The plan includes making an existing initiative for encouraging the scrapping of old vehicles more attractive; setting up a €300 million investment facility partly funded by car makers and large suppliers to inject investment capital into the industry, a move chiefly aimed at helping smaller, cash-strapped suppliers; and creating a two-tranche €1 billion refinancing facility to bolster the in-house auto credit institutions of Renault and PSA Peugeot-Citroen. The interest-rate on this facility will be pegged at 8%.

At present, car owners receive €300 when they scrap vehicles that are more than 15 years old, provided they buy new ones that are fuel efficient and low-polluting.

Under the new plan, the credit will rise to €1,000 and the vehicle cutoff age will be lowered to 10 years. An important adjustment aimed at propping up the residual values of vehicles is that consumers taking advantage of the plan will also be able to buy newer, secondhand, low-emission cars.

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The French plan will cost the state some €220 million. It could generate new car sales of 200,000 vehicles, according to Deutsche Bank analyst Gaetan Toulemonde.

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