The French government is to provide struggling carmaker PSA Peugeot Citroen with seven billion euros in financial guarantees.
It is part of 11.5 billion euros in refinancing needed by Peugeot because its restructuring efforts have proved to be too little, too late to counter a dearth of buyers in Europe.
At the same time it announced sales and revenue fell nearly four percent in the quarter just ended and predicted a nine percent market decline in Europe this year, worse than its earlier forecasts.
The French government said it has confirmed the aid – which will go to Peugeot’s financing business Banque PSA – does not break EU rules, but the German state of Lower Saxony, which is a major Volkswagen shareholder, plans to challenge that.
Chief Financial Officer Jean-Baptiste de Chatillon defended the rescue. “It’s not state aid, it’s state support,” de Chatillon said, adding that Peugeot would pay for the state guarantee. “It’s priced at market values.”
While benefiting from state guarantees Peugeot said it will not pay dividends to shareholders.
That – and the gloomy sales outlook – saw its shares tumble further.
The stock has almost halved in value this year; by contrast Europe’s automobile sector has gained 20 percent.
In return for help, the automaker agreed to appoint government and union representatives to its board of directors and scrap stock options for its top executives.
“Banque PSA is now government-backed,” London-based Credit Suisse analyst David Arnold said. “It’s becoming increasingly obvious that selling assets won’t stem the cash outflow.”
Europe’s car market has suffered from consumers finding their budgets hit by unemployment and government austerity.
The Peugeot rescue coincides with the news that Ford will close a factory in Belgium employing 4,300 workers as it tries to stem losses in the region.
Peugeot has previously announced plans to scrap more than 10,000 jobs and close a domestic assembly plant to stem losses approaching 200 million euros a month.
But the jobs cuts do not sit well with France’s Socialist government, which has indicated it will want them to be trimmed in return for the aid
French Prime Minister Jean-Marc Ayrault said on France Inter radio: “The government has no intention of handing out gifts like this without return commitments.”