Pots and kettles, glass houses and stones – that's a little of what we appear to have going on in the European car market. New reports say that that three European automakers have registered their opposition to a loan deal that PSA/Peugeot-Citroën is working on with the French government. Peugeot's finance arm, Banque PSA Finance, is struggling with its debts and has been downgraded by Moody's to its lowest investment-grade classification, one step above junk. This makes it more expensive for a potential buyer to finance a car through Peugeot. The last thing Peugeot needs is more difficulty selling cars in the tough European market, and the situation will only worsen if the bank's credit worthiness takes another hit.

A deal being worked on would have the French government offer €7 billion ($9B U.S.) in bonds to guarantee the bank's loans, which would give the institution some breathing room to manage its debts and lower its interest rates. Outside of that, a group of banks would provide other, non-guaranteed loans to the bank to further help its position. In exchange for state help, though, the government wants seats on Peugeot's board for worker representatives and a government liaison, along with factory and worker guarantees. The Peugeot family would maintain control of the company.

So what we have is government assistance being provided to a car company's finance arm, akin to the way General Motors' GMAC (now Ally Financial) and Chrysler Financial got help in their time of need. What we also have is Ford and Renault, and Germany's State of Lower Saxony, the second-largest shareholder in Volkswagen, voicing their concern about the proposal, because they say it could create an unfair competitive advantage for Peugeot. Everyone in Europe's down market is fighting for every sale, and if Peugeot gets help to keep its auto loan costs down, it figures to help buyers choose Peugeot or Citroën.

Still, after four years of corporations openly begging for funds from governments, it seems disingenuous for Ford of Europe's CEO Stephen Odell to say "I don't think it's sustainable for support from governments to keep competitive companies going forward, particularly in a protracted downsized economy." Industry watchers will remember that during the US auto industry crisis, Ford didn't receive federal TARP funds, but it did receive low-interest technology loans from the US government and it endorsed TARP support for GM and Chrysler.

For its part, Renault says it is keeping an eye on the situation, and a rep from Lower Saxony said he might refer the issue to the European Union for review. In reply, a Peugeot executive said "It's not state aid, it's state support," which is the kind of slicing-things-thin that's perhaps better used for carpaccio than for dealing with the European car market situation.

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      • 2 Years Ago
      So its OK for the state of Lower Saxony to be the second largest VW stockholder but its not OK for the French Govt. to partially own PSA? Sounds like hypocracy to me.
      • 2 Years Ago
      Ha the irony. VW was a creation of the German government. It was an orphan project resuscitated by the british government after the war and to this day still have a large chunk of stocks owned by the provincial government. Renault, of course, was state-owned for years before it was privatized.
      • 2 Years Ago
      "Ford didn't receive federal TARP funds, but it did receive low-interest technology loans from the US government" This statement is only true if you consider Ford Credit to not be a part of Ford. Ford Credit took nearly $16 billion in TARP loans from the govt. Source: http://blogs.cars.com/kickingtires/2010/12/report-ford-took-federal-funds-too.html
      • 2 Years Ago
      Rather you like Ford or not, they did prove that you can be sustainable even against the odds. GM and Chrysler, you could have gone through bankruptcy and I believe would have been in better position today if you did. Of course Ford wants GM to stay afloat or else parts for them would have been more expensive. Regardless, PLEASE domestic manufactors make cars that the world wants to buy.
      Mike Hunt
      • 2 Years Ago
      Pew Got?
      • 2 Years Ago
      • 2 Years Ago
      What's the point of having EU rules that forbid this exact behavior, when they can be broken by any big state at will? Meanwhile, any small country that extends a line of credit to some company is sued immediately by the EU.
      • 2 Years Ago
      I find it disingenuous that after the last few years you'd actually expect Ford to stand by TARP and other programs just like it.
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