As part of a rescue plan unveiled Wednesday amid growing concern for the country's crisis-hit auto industry and top carmaker Peugeot (IW 1000/43), France will boost support for environmentally friendly cars.
Highlighting the difficulties facing the French auto sector, PSA Peugeot Citroen on Wednesday posted a first half net loss of 819 million euros (US$989 million), more than reversing a year-earlier net profit of 806 million euros.
The recovery plan, presented by Minister for Industrial Renewal Arnaud Montebourg, includes a range of measures to boost cleaner vehicles amid hopes French carmakers can carve out a niche in the market.
But it also contained hints of protectionism, with France planning to ask the European Union to put its 2010 Free Trade Agreement with South Korea under surveillance to "defend the interests of the French automobile industry."
The recovery plan will boost consumer bonuses for purchasing electric cars from 5,000 euros to 7,000 euros and for hybrids from 2,000 euros to 4,000 euros at a cost to the government of about 490 million euros.
Montebourg said the extra costs will be compensated by an increase next year in penalties for driving heavily polluting vehicles.
The project will also see the government commit to 25% of its new vehicles being electric or hybrid and provide financing facilities for manufacturers and suppliers suffering from a major drop in European car sales.
A total of 350 million euros in investment credits will be available to car manufacturers and 150 million euros in assistance will be available to small- and medium-sized businesses in the sector.
The government will also hire filmmakers including Luc Besson of "The Fifth Element" fame to direct advertisements encouraging consumers to buy French cars, Montebourg said.
Prime Minister Jean-Marc Ayrault said the government had chosen to "go on the offensive" with the plan, which he said was "extremely ambitious".
But Ferdinand Dudenhoeffer, an expert on the auto sector at the university of Duisburg-Essen in Germany, said the new plan was like "trying to put out an immense fire with a glass of water."
Peugeot's strategy had simply failed and all it could now do was to "reduce capacity and get through the (eurozone) crisis at a low level," he said.
Renault, France's second biggest car-maker, welcomed the new plan, with its chief executive Carlos Ghosn saying it was sending a "strong signal" in favor of "clean" cars.
Renault however confirmed reports that the launch planned for later this year for its much-heralded new electric model "Zoe" was being put off until 2013 due to technical difficulties.
Peugeot, France's biggest carmaker and the second-largest in Europe, had been expected to announce a first-half net loss but the final figure was more than double analysts' expectations. It said overall sales were down 5.1% in the first half to 29.6 billion euros while the auto division alone suffered a net loss of 662 million euros. Sales in Europe fell 15.2%.
The company, which has already announced 8,000 job cuts in France, said it will implement a 1.5-billion-euro cost reduction plan through to 2015. hat will include 600 million euros in savings from reorganizing French production, which includes the job cuts, reductions in capital spending and savings from a tie-up with U.S. giant General Motors.
"The group is facing difficult times," Peugeot chief executive Philippe Varin said. The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganization of our French production base and a reduction in our structural costs."
After the results, the ratings agency Fitch downgraded Peugeot's long-term debt by one notch to BB, with a negative outlook. Standard and Poor's lowered to BB from BB+ its long-term corporate credit rating.
President Francois Hollande's new Socialist government has attacked Peugeot's strategy and called the job cuts "unacceptable."
The cuts announcement sparked anger among France's unions and dealt a blow to Hollande's efforts to get the economy back on track amid concerns the country might be heading for a recession after an expected contraction in the second quarter.
Peugeot, which employs 100,000 people in France, is a key symbol of the country's industry and its problems highlight France's difficulty in competing with rivals with lower labor costs.
Chairman Thierry Peugeot said last week the attacks have put PSA in a "dangerous" position and France's right-wing opposition has accused the government of creating a toxic business atmosphere that threatens the economy.
About 593,000 people are directly employed in automobile production in France.
At least 1,000 Peugeot employees protested outside the company's headquarters on Wednesday including many from the company's historic Aulnay plant near Paris that is due to close.
-By Francois Becker and Laure Fillon
Copyright Agence France-Presse, 2012