France to rescue car industry

Paris - France might take stakes in carmarkers in exchange for state financial support, the industry minister said in an interview published on Monday on the eve of a meeting to agree a rescue plan for the auto industry.

Facing a collapse in car sales, Renault, PSA Peugeot Citroen and their suppliers have dramatically cut production and shed thousands of jobs as they struggle to stay afloat in the global economic downturn.

Industry Minister Luc Chatel told Le Figaro newspaper that several options were under consideration to save a sector that directly or indirectly employs 10% of the French workforce.

"Carmarkers do not necessarily need capital, but in exchange for our financial support, an increase in capital could in some cases be a good trade-off," said Chatel said in the interview.

President Nicolas Sarkozy last week said the state was ready to "mobilise lots of money" to shore up carmarkers that opt not to relocate their factories abroad and keep jobs in France.

On Tuesday, Sarkozy will join executives from car manufacturing companies and suppliers along with union leaders for a meeting to agree on a plan to shore up the struggling industry.

A new €300m state support fund for the industry will be launched ahead of a broader rescue package to be unveiled in late January, Chatel said.

France, which already owns a 15% share in Renault, is also pressuring carmakers to forego paying a dividend to shareholders in exchange for state funds.

Finance Minister Christine Lagarde on Friday made the case in Brussels for relaxing the European Union's strict rules on state aid, arguing that government support was needed to help the industry adapt to demands for more environmentally-friendly models.

But the European Commission ruled out a further relaxation in state aid regulations, warning against a "race to subsidies."

- AFP