France unveils green incentive to rescue auto industry

Sun, 29 Jul 2012

PSA Peugeot Citroën and the French goverment have been negotiating how to repair the company's business position without ruining the new government's promises to the electorate. At last count, Peugeot wants to send 14,000 workers home for good, close a factory in Aulnay, and trim some of its 25% overcapacity. The automaker desperately wants to sell more cars to help it stop losing €200 million ($246M U.S.) per month. The government has already nixed the most drastic plans, but it needs to keep Peugeot from drowning at the same time as doing so saves jobs, encourages domestic car sales, and balances a nasty state budget. In addition, any maneuver needs to keep the EU's competition watchdog from intervening.

Dow Jones reports that the solution involves increasing cash incentives for EV and hybrid purchases and raising taxes on "high emission vehicles." France already provides a €5,000 subsidy for EVs and €2,000 for hybrids, but those will see a €2,000 bump to €7,000 and €4,000, respectively. The CO2 output or engine displacement that would qualify a vehicle as "high emission" isn't stated. Supplemental and longer-term plans include asking the EU to examine a free-trade agreement with South Korea that France says has resulted in a glut of South Korean cars, and providing €600 million in lifelines to smaller, struggling automaker suppliers.

From our perspective, the measures look like more of the same largely-useless pussyfooting that has kept Europe staring at the economic apocalypse for more than two years. In a New York Times article about Europe's "day of reckoning," Fiat and Chrysler CEO Sergio Marchionne said, "I've never seen it this bad. All the unresolved issues that have been plaguing the industry for a number of years have all come forward."

Austerity measures on top of the general European economy are keeping buyers away, and we have no idea how another €2,000 on the hood is supposed to spur enough demand for EVs and hybrids to help Peugeot and Citroën. Even if they tripled their sales numbers, they'd still be niche vehicles.

The problem right now is that in 30 days Peugeot will be another €200 million in the hole, and neither the company nor the government can allow that to continue, else they'll both be taking even bigger lumps soon enough.

By Jonathon Ramsey