France Will Spend $547 Million to Help Develop Greener Cars

Sarkozy Calls for Looser EU Rules on Aid
By DAVID GAUTHIER-VILLARS in Paris and EDWARD TAYLOR in Frankfurt

French President Nicolas Sarkozy called Thursday for the European Union to loosen rules restricting state aid to industry, and said France will spend €400 million ($547 million) of public funds to help its auto makers develop greener cars.
EU officials recently have given the impression that they may be growing more lenient on state-aid restrictions as European governments struggle to respond to the global financial crisis. And many EU countries have adopted emergency domestic bailout plans without consulting their neighbors.

But some economists said that with his proposal to soften state-aid rules, Mr. Sarkozy was trying to use confusion over the European Commission's role to push a favorite project: the resurrection of government-sponsored industrial policy. In France, several big industries -- nuclear power, high-speed trains and aerospace -- have grown as a result of state aid and guidance.
"Mr. Sarkozy is resuming his lobbying," says Jean-François Jamet, an economist and consultant for the World Bank. "I am not sure many EU member states will support him."
European antitrust authorities have rejected several attempts by the French to prop up their auto industry, on the grounds that such aid would violate EU rules against state aid. In February, the commission blocked a French plan to grant Peugeot up to €100 million in state aid.
European car makers squeezed by the financial crisis are pressing the EU to agree to a €40 billion soft-loan package. Mr. Sarkozy said during a visit to the Paris Auto Show that it was time for the EU to loosen its antitrust rules and allow countries to help key industries -- or risk their decline. The French president, who holds the EU's rotating presidency until the end of 2008, said it was urgent to take action because the U.S. was drafting a $25 billion package to support its auto makers.
By sticking to the current rules which restrict EU subsidies, "I think we are being naive," Mr. Sarkozy said. "And I think it's been going on for too long."
The commission will examine the latest French plan as soon as it is notified by Paris, according to a spokesman for Antitrust Commissioner Neelie Kroes. "Under the current framework, governments can provide aid for research and development, training and environmental projects," spokesman Jonathan Todd said.
The bulk of the French funds for greener vehicles will go toward electric-car projects, Mr. Sarkozy said as he visited the stands of French auto makers PSA Peugeot Citroën SA and Renault SA at the Paris auto show.
Associated Press
President Nicolas Sarkozy
He also said France will replace all government cars more than 10 years old with fuel-efficient vehicles. In addition, the country will extend until 2012 a €5,000 subsidy to buyers of ultra-low-emission cars.
The French government fears that the financial crisis, as it has in the U.S., will damp demand for cars -- big-ticket items that most customers buy on credit.
The gloomy economic outlook and change in credit conditions have already hurt passenger-car sales in Western Europe, a key market for the French auto makers. In September, car registrations in Spain fell 32% on the year. Spanish car manufacturers' association Anfac attributed the drop to "higher mortgage payments and the overall increase in prices," which had "decreased disposable income."
Italy's new-car registrations in September dropped 5.5% from a year earlier. In Germany, passenger-car registrations fell 1.5%; new-car registrations in the U.K. skidded 21%. It was the U.K.'s fifth consecutive month of decline, and these are "the most difficult economic conditions the industry has faced in 17 years," the U.K. Society of Motor Manufacturers and Traders said. SMMT Chief Executive Paul Everitt called for "government action to restore consumer confidence and boost demand in the real economy."—Neal E. Boudette in Detroit contributed to this article.
Write to David Gauthier-Villars at David.Gauthier-Villars@wsj.com and Edward Taylor at edward.taylor@wsj.com