PSA Peugeot Citroen may announce a deal as soon as today in which the French state would guarantee as much as 7 billion euros ($9 billion) in new bonds for the carmaker’s finance arm in exchange for greater government and worker influence, people familiar with the matter said.

The government would back the bonds for Banque PSA Finance, and Peugeot would appoint a labor leader and a government representative to its board of directors, said the people, who asked not to be identified discussing ongoing talks. A syndicate of banks would also provide Peugeot’s financing unit with news loans which would not have state guarantees, the people said.

Peugeot, Europe’s second-largest carmaker after Volkswagen AG, needs the state backing to keep down its borrowing costs, which impact the rate paid by customers. The guarantees would mark the biggest intervention by the French government in the auto industry since 2009 when it provided Peugeot and Renault SA with 6 billion euros in loans.

Peugeot is using up cash as the region’s car market heads for its biggest annual drop in 19 years. The carmaker, whose nine-month sales in the region dropped 13 percent, said in July it will eliminate 8,000 jobs and close a factory near Paris. Peugeot has also sold assets and issued 1 billion euros in new shares to raise funds.

The German state of Lower Saxony, VW’s second-biggest shareholder, said it opposes French aid for Peugeot and indicated Germany would ask for a European Commision review.

“It is pretty obvious what would happen,” David McAllister, Lower Saxony’s prime minister and VW supervisory board member, said when asked by Bloomberg whether he’d request a 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.”

McAllister is a member of Chancellor Angela Merkel’s Christian Democratic Union party. The European Commission may scrutinize the plan under state aid rules if it gives the company an unfair financial advantage.

The shares dropped 15 cents, or 2.5 percent, to 5.83 euros at the close of trading today in Paris. The stock has plunged 45 percent this year, giving the automaker a market valuation of 2.07 billion euros.

The French carmaker would cut 100 fewer jobs than planned as part of the deal, one of the people said.

“All in all, these concessions are very political and not that penalizing for PSA, as the board will remain dominated by the family,” said Florent Couvreur, an analyst at CM-CIC Securities who recommends buying the shares. 

(Bloomberg)