France to boost clean cars as Peugeot details losses

France will boost support for environmentally friendly cars as part of a recovery plan to be unveiled Wednesday amid growing concern for the country's crisis-hit auto industry and top carmaker Peugeot.

Highlighting the difficulties facing the French auto sector, PSA Peugeot Citroen announced Wednesday it had suffered a first half net loss of 819 million euros ($989 million), more than reversing a year-earlier net profit of 806 million euros.

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.

The recovery plan, which will be presented to cabinet on Wednesday and parts of which were seen by AFP, includes a range of measures to boost cleaner vehicles amid hopes French carmakers can carve out a niche in the market.

But it also contains hints of protectionism, with France planning to ask the European Union to put its 2010 Free Trade Agreement with South Korea under surveillance so as to "defend the interests of the French automobile industry."

The 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.

It will see the government commit to 25 percent of its new vehicles being electric or hybrid and provide for financing facilities for manufacturers and suppliers suffering from a major drop in European car sales.

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.

Peugeot said overall revenues were down 5.1 percent 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 percent.

The cost-cutting plan will include 600 million euros in savings from reorganising French production, which includes the previously announced job cuts, reductions in capital spending and savings from a tie-up with US giant General Motors.

"The group is facing difficult times," Peugeot chief Philippe Varin said in a statement.

"The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganisation of our French production base and a reduction in our structural costs," he said.

"Restoring the group's competitiveness will secure its future," he said.

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 powerful 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 labour costs.

Hollande's government has lashed out at Peugeot over the cuts, with Minister for Industrial Renewal Arnaud Montebourg saying he had a "real problem" with the company's strategy and did not have confidence in its management.

Company 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.

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