Oct. 23 (Bloomberg) -- The German state of Lower Saxony, Volkswagen AG’s second-largest shareholder, opposes French government aid for PSA Peugeot Citroen’s ailing financing arm and indicated Germany would ask for a European Commision 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, said in an interview with Bloomberg TV in Berlin late yesterday.
Peugeot may announce a deal as soon as today in which the French state would guarantee new loans for the carmaker’s bank in exchange for greater government influence, a person familiar with the matter said. Finance Minister Pierre Moscovici said last week Peugeot may get a funding lifeline from the state.
Peugeot needs to prop up its bank to keep down borrowing costs, which directly impacts the rates it charges customers. The carmaker is using up cash as the European auto market heads for its biggest annual decline in 19 years. Peugeot, whose nine-month sales in the region dropped 13 percent, is cutting 8,000 jobs and closing a factory near Paris.
The European Commission may scrutinize the plan 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 Peugeot 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.”
Lower Saxony has 20 percent of VW’s voting rights and a blocking minority in Europe’s largest automaker.
The continued review of Peugeot’s financing arm for a possible downgrade by Moody’s Investors Service could lead the bank to be rated junk. 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 Peugeot, the same loan would cost around 11.6 percent annually, according to the automaker’s website.