VW's home state will oppose French gov't aid to PSA bank
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PARIS -- The German state of Lower Saxony, Volkswagen's second-largest shareholder, opposes French government aid for PSA/Peugeot-Citroen's ailing financing arm and indicated Germany would ask for a European Commission review.
"VW and Lower Saxony see these state loans very critically because they won't help solve the problems that certain European states have with their automotive industry," David McAllister, Lower Saxony's prime minister and a VW supervisory board member, told Bloomberg TV.
PSA was today discussing a deal in which the French state would guarantee new loans for the carmaker's financial arm, Banque PSA Finance (BPF), in exchange for greater government influence, Bloomberg and Reuters reported, citing sources familiar with the discussions.
France will provide between 5 billion and 7 billion euros in financial guarantees for BPF and PSA in exchange would appoint a labor leader and a government representative to its board, reports said.
The European Commission may scrutinize any state aid to BPF under state aid rules if it gives the company an unfair financial advantage.
"It is pretty obvious what would happen," McAllister said when asked whether the German government would refer any French aid for PSA to the European Commission for review. "We know that the solution to the problems we have in the European automobile industry cannot be state funds."
VW has its headquarters in Wolfsburg, Lower Saxony, and the state has 20 percent of VW's voting rights and a blocking minority in Europe's largest automaker.
PSA may need state backing for BPF as soon as this week because publication of the group's quarterly sales on Wednesday may trigger debt rating downgrades, Les Echos reported on Monday, citing an unidentified government source. Recent downgrades to PSA's credit rating threaten to relegate BPF to junk status, further widening the competitiveness gap with rivals such as Volkswagen by making its car loans more expensive.
A non-investment grade rating for the bank would increase borrowing costs and as a result worsen financing conditions for customers and dealers. French buyers currently pay as little as 1.9 percent annual interest on 10,000 euros in financing from VW, the company says. From PSA, the same loan would cost around 11.6 percent annually, according to the automaker's website.
PSA is using up cash as the European auto market heads for its biggest annual decline in 19 years. The automaker is cutting 8,000 jobs and closing a factory at Aulnay near Paris that builds the Citroen C3 to halt spiraling losses.
Bloomberg and Reuters contributed to this report
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