France to boost clean cars as Peugeot unveils losses

France will boost support for environmentally friendly cars as part of a rescue plan 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 said Wednesday it 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 recovery plan, presented by Minister for Industrial Renewal Arnaud Montebourg, includes a range of measures to boost cleaner vehicles amid hopes French carmakers can carve out a niche in the market. But it also contained hints of protectionism, with France planning to ask the European Union to put its 2010 Free Trade Agreement with South Korea under surveillance to "defend the interests of the French automobile industry." Montebourg accused South Korean carmakers of "acts of unfair competition" and said "we are justified in demanding monitoring measures which may enable us to request a safeguard clause" that allows a return to tariffs. The recovery 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 at a cost to the government of about 490 million euros. Montebourg said the extra costs will be compensated by an increase next year in penalties for driving heavily polluting vehicles. The project will also 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. A total of 350 million euros in investment credits will be available to car manufacturers and 150 million euros in assistance will be available to small- and medium-sized business in the sector. The government will also hire filmmakers including Luc Besson of "The Fifth Element" fame to direct advertisements encouraging consumers to buy French cars, Montebourg said. Prime Minister Jean-Marc Ayrault said the government had chosen to "go on the offensive" with the plan, which he said was "extremely ambitious". "This is part of our very great determination to see the automotive industry recover, this is an extremely important act," he said. 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 sales 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 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 cost-cutting plan will include 600 million euros in savings from reorganising French production, which includes the 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 executive Philippe Varin said. "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. After the results, the ratings agency Fitch downgraded Peugeot's long-term debt by one notch to BB, with a negative outlook. 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 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. At least 1,000 Peugeot employees protested outside the company's headquarters on Wednesday including many from the company's historic Aulnay plant near Paris that is due to cease production. "We're angry," said Jean-Pierre Girard, who has worked for Peugeot for 35 years. "It is shameful to close a plant and leave employees in the lurch after so much good and loyal service."