France Lines Up €665 Million in Auto Aid

The French government says it will spend about €490 million on car subsidies to "muscle up" its domestic auto industry by sparking sales of fuel-efficient vehicles. France also plans to offer €175 million in loans to struggling small and medium-size suppliers.

Analysts criticize the program as too small to make much difference to the country's ailing carmakers. They also note it fails to tackle the underlying problems of excess capacity and high labor costs.

The government will boost subsidies to buyers of hybrid and electric vehicles by €2,000 to €4,000 and €7,000 per unit, respectively. Tax breaks for consumers on fuel-efficient vehicles will increase by €150. The incentives are intended to most benefit PSA Peugeot Citroen and Renault SA, which have invested heavily in fuel-efficient cars.

Subsidies will mainly be financed by increasing penalties on the purchase of vehicles that emit high levels of greenhouse gases, says Industry Minister Arnaud Montebourg.

France also is eyeing trade relief for the domestic auto industry, according to Montebourg. He says the government will ask the EU to monitor "unfair" South Korean imports to Europe, in hopes the review would result in higher tariffs.