AFP - France will lend 6.5 billion euros (8.5 billion dollars) to three major motor manufacturers in exchange for a pledge to keep French auto plants open, President Nicolas Sarkozy said on Monday.
Renault and Peugeot Citroen will each receive three billion euros, while Renault Trucks, which is owned by AB Volvo of Sweden, will receive 0.5 billion euros, the president announced following talks with car manufacturers.
"This is not a gift. It is not a subsidy. It is a loan offered at a interest rate of six percent," the president said as he announced the measures, to run over a five-year period.
Sarkozy also announced a doubling of state aid to auto industry suppliers, who will receive 600 million euros in a bid to protect the key sector -- which employs one French worker in 10 -- from the global economic storm.
France will also double to two billion euros a bail-out package for the financial services arms of Renault and Peugeot-Citroen.
Sarkozy said the loans would allow France's two leading car manufacturers to "prepare calmly for the future."
"Renault and PSA have made a commitment... to close no sites over the duration of the loan and to do everything to avoid redundancies," he said.
"I welcome this commitment since it gives us the assurance that an acute but temporary crisis will not destroy part of our industrial base and our auto industry skills."
Peugeot Citroen responded by announcing it would keep all of its French production sites open, and would not lay off French staff despite the slowdown.
The loan offer came as Renault's international partner Nissan announced it was to cut 20,000 workers worldwide and pull out of a joint project with the French firm in Morocco, where they were due to open a large plant.
Sarkozy has made protecting France's iconic industries the central plank of his supply-led plan to ride out the global economic slowdown, but he will have to tread carefully to avoid triggering a row over protectionism.
Already last week, he angered Eastern European governments by suggesting in a television interview that Peugeot should close a plant in the Czech Republic and bring production home to France, where many factories are under threat.
"We want to stop factories from relocating abroad, and if possible bring them back home," Sarkozy said.
"If we give money to the auto industry to restructure itself, it's not so we can hear about a new plant moving to the Czech Republic or wherever."
Last week, France's junior industry minister Luc Chatel said Sarkozy would ask any car companies that receive state aid to "commit to making investments and locating production plants in France."
This provoked a rebuke from EU Competition Commissioner Neelie Kroes, who warned Paris against protectionism.
Other European countries are working on plans to support manufacturing, but France is unusual in concentrating on measures to boost investment in firms rather than consumer spending.
France has a cash bonus to persuade motorists to trade in old car models for new, but the bulk of state aid to the sector will flow directly to the two main firms and their suppliers.
Sarkozy defended this stance in the same television interview last week, in the process also managing to offend Britain's Prime Minister Gordon Brown, who has cut sales taxes to seek a demand-led recovery.
"If the British have done that it's because they have no more industry," Sarkozy said. "Gordon Brown can't do what I've done for the car industry... because they haven't got one."
Since the global downturn began to bite, both Renault and Peugeot have slashed production and shuttered plants, sub-contractors have closed and hundreds of workers have accepted redundancy offers.