Europe’s second biggest automaker, PSA Peugeot Citroen, has gotten approval from the European Union for the French government to guarantee $9.28 billion (7 billion Euros) in bonds to provide Banque PSA Finance, the car maker’s finance arm, with funds so they can sell cars on credit at competitive interest rates.
“We have arrived at a formula which allows PSA to restructure in accordance with clear limits, reducing to a minimum the damaging effects for competitors who have not received support from public funding,” said Joaquin Almunia, EU Competition Commissioner, in a written statement. “This is a balanced result which offers the PSA group the chance to make a new start on a sound basis.”
The bonds helps Peugeot keep down borrowing costs, a vital ingredient in offering loans competitive with the financing deals offered by companies like Volkswagen, Europe’s biggest automaker.
This is only a FAIL for the French government. Sounds like they’re merely subsidizing the profits on these car loans, with no risk to PSA Peugeot Citroen.
“a vital ingredient in offering loans competitive with the financing deals offered by companies like Volkswagen, Europe’s biggest automaker.”
Much like individuals, corporations with poor economic ratings get more expensive financing.
And again like individuals, if you have a rich parent (the French government) that can vouch and co-sign for you, you’ll also get preferential loan rates.
First two comments are exactly right.
The US way is to let the situation slide a few steps closer to financial ruin, then reorganize under Chapter 11 or a GM-style bail out. That way most of the many players involved take a “haircut” to some degree or another depending on well-established precedents. Bankruptcy lawyers get paid first. Common stock holders are at the bottom of the list.
Looks like the French government gave itself an “auto haircut”.