Paris gives Renault and Peugeot �779m

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France became the first country on Monday to provide credit guarantees to the financing arms of its carmakers with a �779m payment split between Renault and Peugeot.

The Elys�e palace said the body set up to underpin new bank debts would hand over a further �221m ($302m, �197m) to the two carmakers before the end of January to support their consumer finance divisions.

After meeting representatives from the two manufacturers and Valeo, a leading components� supplier, President Nicolas Sarkozy signalled his �willingness to put in new forms of aid, notably in the shape of loans or guarantees�.

However, he said these would have to be drawn up in collaboration with other European Union member states and the European Commission.

He also warned that aid would be given only in return for a �firm undertaking� by manufacturers not to shift production abroad or to encourage their suppliers to shift their production outside France.

The French government has so far provided little direct aid to its car industry beyond more generous scrapping incentives for old cars and aid for research into low-emissions technology.

The French car industry has recently stepped up its appeals for state assistance as it reels from plunging sales and tighter credit conditions.

Carlos Ghosn, chief executive of Renault, said on Friday he wanted state loans of a maturity of two to three years at an attractive interest rate of 4 to 5 per cent.

On Monday, Mr Sarkozy ordered a government review of the French car industry, with restructuring proposals aimed at gaining market share and making the industry a net exporter once again.

The Elys�e is keen to avoid bailing out the manufacturers without a more fundamental restructuring of the supply chain.

FT