Paris - France on Monday pledged 3 billion euro loans for struggling car makers PSA Peugeot Citroen and Renault, saying the two companies had promised to safeguard French jobs in return.
Some of France's EU partners have already protested over efforts by President Nicolas Sarkozy to protect French factories from the impact of the economic crisis and the European Commission said it would scrutinise his auto plan.
France is the latest European country to pledge to help its automakers - Italy on Friday promised 2 billion euros for the flagging sector.
Sarkozy offered France's two carmakers a total 6 billion euros in five-year, 6% interest rate loans to fund investment into clean vehicle technologies, and said they had pledged not to close any French sites during the loan term and agreed to "do everything" to avoid further job losses.
PSA chief executive Christian Streiff and Renault chief operating officer Patrick Pelata said their firms would not launch redundancy plans this year.
Pelata said the initial 6% loan rate would rise if the companies' results improved.
Industry secretary Luc Chatel told reporters the terms of the aid for the sector foresaw management foregoing bonuses. Asked whether dividends would be paid to shareholders, he said the priority would be investment.
Falling car sales worldwide have hurt the French car industry as the credit crunch and worsening economic climate put the brakes on consumer spending.
Shares in PSA Peugeot Citroen closed 3.9% higher on Monday after the plan was announced, while Renault's gained 7.16%, against a CAC-40 index that finished 0.39% higher.
The French state also said a further 500 million euro loan could be made available during 2009 for each of the manufacturers' financing arms, RCI Banque and Banque PSA Finance. Late last year it pledged the same amount in loans for the two divisions.
Underlining the problems facing the sector, Renault's alliance partner Nissan Motor Co announced on Monday 20 000 job cuts by March 2010 and said it expected to report its first annual loss for 14 years.
French officials said the car industry accounts directly or indirectly for 10% of all jobs in France and in an effort to spread out the help, Sarkozy said the support fund for auto suppliers would be doubled to 600 million euros.
Sarkozy angered Prague last week by saying French car companies should locate their factories at home rather than in cheaper labour markets, like the Czech Republic.
Within minutes of the French plan being unveiled, the European Commission in Brussels said it would be reading the small print to make sure it did not break competition rules.
"The Commission will need to scrutinise very carefully details of the subsidies, the conditions attached to make sure of their compliance with state aid and single market rules," Commission competition spokesman Jonathan Todd said.
Peugeot and Renault are due to report full-year results on Feb. 11 and 12 respectively. Both have already reported a slump in full-year sales and cut profitability targets.
Analysts said they may still miss these targets, but attention will focus on their cash positions, and the steps taken to reduce stocks of unsold vehicles.
Peugeot is expected to post earnings before interest, tax, depreciation and amortisation (EBITDA) of 3.898 billion euros, according to an average of forecasts by 17 analysts, compared with last year's 5.325 billion.
Renault is expected to post EBITDA of 3.648 billion, compared with 4.246 billion last year.