France Poised for Indirect Rescue of PSA

The French government is close to an agreement to bolster PSA Peugeot Citroen by providing as much as €7 billion in loan guarantees to the carmaker's finance arm, according to news reports.

Banque PSA Finance's existing creditors are expected to provide most of the loans. The finance unit needs the liquidity to avoid a junk-bond rating that would impair its ability to keep making loans to PSA customers and dealers.

In exchange, PSA will reportedly add a labor representative and a government-approved director to its board. News reports suggest the government will demand only a minor reduction in the carmaker's plan to shed 8,000 jobs in France.

Any bailout will require EU approval. The German state of Lower Saxony, which is one of Volkswagen AG's major shareholders, says it will challenge any French aid to PSA Banque as a violation of EU fair-competition rules.