France: Higher Subsidies for Electric and Hybrid Cars

July 31st, 2012
in econ_news, syndication

Econintersect:  The new French Socialist government headed by President Francois Hollande has boosted subsidies for “green technology” automobiles in an effort to create a recovery in the peugeot-electric-carSMALLstruggling car industry in that country.  The largest automobile manufacturer in France, PSA Peugot Citroen, has reported losing over $1 billion in the first half of 2012.  The subsidy package will total €490m, with subsidies of €7,000 (up from €5,000) for electric cars and €4,000 for hybrids (up from €2,000).  Foreign as well as French manufacturers will be covered. Subsidies for regular vehicles with low CO2 emissions were also increased.

Click on photo for larger image of the Peugeot Ion Electric car.

Follow up:

The package will be largely paid for by new taxes to be introduced next year on high-emission vehicles.  This will primarily be a luxury car tax and hit most heavily on cars produced by Germany’s Mercedes and BMW.  French manufacturers are relatively small players in the high end market compared to the Germans.

According to an article in The Wall Street Journal, France’s auto industry is facing layoffs and other cutbacks because of losses.  From the WSJ:

The measures come against a backdrop of accelerating concern over the fate of the country's largest auto maker, PSA Peugeot Citroen SA (UG.FR). The company said earlier this month it would shut a large assembly plant north of Paris and lay off 8% of its domestic workforce as it seeks to stem a dangerous cash haemorrhage of EUR200 million a month.

Hollande has said that this is “unacceptable.”

New GEI contributor Hilary Barnes writes in an Op Ed tonight that the logic of this plan is questionable because France builds most of its cars for export and the subsidies in France will have not benefit for the non-French buyer.  Barnes indicates the plan is not addressing the problem.  He writes:

The only way to revive the French industry is for the French industry to improve its competitiveness. For Peugeot this means initially a plan to cut costs, partly by reducing the headcount. Making unmarketable cars is the antithesis of improving competitiveness.


John Lounsbury


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