UPDATE 2-France will put "a lot of money" into car industry

VESOUL, France, Jan 15 - France will put "a lot of money" into aid for the struggling car industry, President Nicolas Sarkozy said on Thursday.

Sarkozy, speaking in the east of France after a visit to a PSA Peugeot Citroen site, said the state would do all it could to make sure the industry came out of the crisis stronger than before.

"We are working with the car sector, carmakers and their suppliers, to get out of this situation and to finalise a plan by the end of January," Sarkozy said.

"That means that we will be ready to give the necessary support, in the form of loans or guarantees, to compensate for the blockage in the financing of companies ... but we will clearly ask them for an end to offshoring, and even the reinforcement of their activities in France," he said.

"Of course, it is not enough to ask them. We will have to make a contract with the automobile industry to restore in a durable way its competitiveness in France," Sarkozy said.

On Tuesday next week the government is due to meet car industry representatives and detail a plan to help in the face of a big drop in sales due to the economic crisis and credit restrictions.

"We can't leave our automobile industry to founder because it would take with it half of the French industry," he said, referring to electronics, glass, steel, plastics and other businesses supplying the auto industry. He said he was surprised France, which has two big vehicle makers, had become a net importer of cars.

European new passenger car sales fell 17.8 percent year-on-year in December 2008, the sharpest fall for 15 years, industry association ACEA said on Thursday.

In Brussels a spokesman for the European Commission said France had been in contact with it about possible state aid to carmakers.

"I can confirm that we have had contact with the French ... I can't give you any details of that but clearly there are many possibilities under the EU state aid rule for aid to various sectors including the car industry," Jonathan Todd told a regular briefing.

Sarkozy said last year that French carmakers woud have to promise not to move production out of the country.

France has a 16 percent stake in Renault.

Peugeot's shares were down 1 percent at 14.14 euros at 1335 GMT, while Renault was also down 1 percent at 17.75 euros and the Dow Jones Stoxx European auto sector index was down 1.2 percent.

FINANCING

Peugeot and Renault -- which both have financing arms -- have stressed a need for access to adequate financing, with Renault's head of sales Patrick Blain saying last week the group has financing needs of around 9 billion euros ($11.8 billion) per year.

Executive vice-president for autos of the Peugeot brand, Jean-Philippe Collin, said on Tuesday that with around 70 percent of vehicle sales financed by credit the group's financing needs were "significant".

Governments across Europe have pledged their support for an industry that employs 2.2 million people directly in the region, as well as a further 10 million in related industries and services.

In France, Europe's fourth-largest market according to data from manufacturers' association CCFA, the government is expected to announce further measures to support the flagging industry at the summit on Jan 20.

Automakers and the government are expected to discuss technology, competitiveness, the role of subcontractors and jobs.

French finance minister Christine Lagarde said earlier this week the government was likely to announce measures to boost carmakers' capital and improve financing for car purchases.

The government has already introduced a scrapping incentive for consumers trading in old cars, a move which has already had positive effects, carmakers have said.

In addition the state has promised access to a 300 million euro fund to finance restructuring among small subcontractors, and 1 billion euros in guarantees for the financing arms of the two carmakers. ($1 = 0.7608 euros)