Macron Set to Unveil Aid for Embattled French Auto Industry

• Package to include consumer incentives to buy cleaner vehicles
• Government to back suppliers; Renault to join battery project

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French President Emmanuel Macron is set to announce measures to support the auto industry before other European governments, highlighting the crucial role the sector plays in the economy and how hard it has been hit by the coronavirus pandemic.

The plan will include consumer incentives for the purchase of cleaner cars, and aid for small and medium-sized parts suppliers to modernize factories and consolidate, according to Junior Economy Minister Agnes Pannier-Runacher. Renault SA is considering joining a venture between rival PSA Group and Total SA to develop electric auto batteries as well as increasing electric car activity in France, she added.

“France needs to be competitive,” she said Tuesday on BFM radio. “We are going to invest in this auto industrial sector.”

The auto plan is one of a trio of industrial stimulus packages pledged by Finance Minister Bruno Le Maire in recent weeks. The state already earmarked 18 billion euros ($19.6 billion) for the hard-hit tourism industry, and is preparing to help the aviation sector as well. The car industry employs 400,000 people in France, with roughly 30 vehicle and parts factories dotted across the country.

Macron’s announcement will kick off a decisive week for Renault. Along with Peugeot-maker PSA, the carmakers are among France’s largest manufacturers and were behind historic models like the Citroen 2CV and Renault 4. France owns stakes in both companies.

In the face of a collapse of the European car market, Renault is set to receive a 5-billion-euro state-backed loan in coming days. It’s also likely to announce sweeping cost cuts, possibly including some plant closures, and fresh measures to cooperate with its alliance partners Nissan Motor Co. and Mitsubishi Motors Corp.

Read More: Renault Weighs French Factory Closures To Cope With Crisis

Government incentives for buyers of newer cars are “a very effective tool” to boost sales, Le Maire has said. Germany, which will unveil its own cash-for-clunkers plan in early June, is also pushing to develop a car battery industry.

Pannier-Runacher said carmakers and major parts suppliers Valeo SA, Faurecia SE and Plastic Omnium SA would “in return” for the auto plan be asked to consider returning some activity to France. The pandemic exposed supply chain vulnerability and over-reliance on China, she said.

Factory Closures?

It’s not clear how this will be done, especially since Le Maire has also said the state won’t force Renault to keep factories open.

“The biggest problem is jobs,” said Jean-Pierre Mercier, a spokesman for the CGT union. “The government has given a green light for plant closures.”

In addition to Renault, the union is expecting capacity cuts at PSA, which is aiming to combine next year with Fiat Chrysler Automobiles NV. That company is nearing approval of a 6.3 billion-euro ($6.9 billion) credit facility from lender Intesa Sanpaolo SpA in what would be Europe’s biggest government-backed financing to a carmaker since the start of the pandemic.

France’s auto aid package will add to pressure on public coffers. The government has already rewritten its budget forecasts twice this year, and sees debt rising to more than 115% of annual output as it spends to avert job losses and bankruptcies.

While Macron has faced low popularity in polls, his government was rated by those surveyed as being more able to handle the economic slump than the health crisis.

(Adds comment from junior minister from second paragraph.)