French Auto-Industry Aid Plan Problematic, Sweden’s Borg Says

French aid to the auto industry came under fresh criticism as Sweden’s finance minister said a plan to provide loans at a preferred rate to France’s biggest carmakers likely will disrupt competition in the European Union.
“It is problematic of course for Sweden,” Swedish Finance Minister Anders Borg said today in Brussels where he is attending monthly meeting of EU finance chiefs. “We have an automotive industry that is strong. We try to deal with it in a fair way that is also strengthening competition, and I think everybody should do that.”
French President Nicolas Sarkozy said yesterday that PSA Peugeot Citroen and Renault SA will each get a five-year loan of 3 billion euros ($3.9 billion) at a 6 percent rate from the government after they promised to not shut plants and fire workers in France. Renault Trucks, which is owned by Volvo AB of Sweden, and some other automakers will also receive 500 million euros in loans, he said.
With the region trying to prevent a surge in protectionism, Sarkozy’s efforts to keep car production in France as the global economic slump and tighter credit conditions hurt auto sales across the world has already drawn criticism from the Czech Republic, which the French president singled out last week.
“Creating a plant in the Czech Republic to sell cars in France isn’t justified,” Sarkozy said in a broadcast interview on Feb. 5. “I want to stop relocation abroad” and return jobs to France “if possible.” Paris-based Peugeot, France’s largest carmaker, began making small cars in the Czech Republic in 2005 at a factory jointly owned with Toyota Motor Corp.
French Market
“I do not understand the argument that it is unjustifiable to manufacture cars for the French market in the Czech Republic,” Czech Prime Minister Mirek Topolanek said in response to Sarkozy’s comments. The Czech leader, whose government took over the six-month rotating presidency of the EU from France at the start of the year, said the attitude in Paris threatens the Lisbon Treaty, which the Czechs have yet to ratify.
Sarkozy is trying to save jobs in France, Europe’s third- largest economy, where unemployment has reached a two-year high as it is enters its first recession in 16 years.
Production of cars and parts in France fell 38.7 percent in the fourth quarter from a year earlier, a government report showed today, as carmakers as well as their suppliers shut some factories temporarily to face the slump. In Sweden, production of motor vehicles plunged 41.3 percent in December from a year earlier, the statistics office said.
Production Cost
Renault has said the production cost of a subcompact is 1,400 euros higher in France than in nearby economies where wages are lower, with social security and local taxes accounting for more than two-thirds of the gap.
France granted a first package of aid to its auto industry in December, including a 1,000 euro sales incentive for households who buy a new car and scrap an old one, and 1 billion euros in low-interest loans to the car-financing arms of Peugeot and Renault. It also set up a fund owned by the government, Renault and Peugeot, which will invest in auto-parts makers based in France.
In Italy, the government on Feb. 6 announced a 2 billion- euro stimulus package to help auto producers and suppliers. The German government said in January it would boost auto demand with a 1.5 billion-euro program, including an incentive of 2,500 euros when consumers scrap a car older than nine years.
Sweden’s government in December unveiled a 28 billion-krona ($3.5 billion) support package for Volvo Cars and Saab Automobile that aims to push development of fuel-efficient vehicles and ease the manufacturers’ access to funding. The plan provides Sweden’s carmakers with a 5 billion-krona rescue loan, additional funding for research and development as well as credit guarantees.