(NYT) - PSA has made strategic errors, dependent on Europe for 75 per cent of its revenue and too slow to find a global partner, finally allying with General Motors this year.

But in the recession, PSA is burning cash, losing more than US$1 billion in the first half of this year.

The European car industry as a whole is having its worst year since 1996, with an estimate of 12.4 million vehicles sold in the European Union, three million fewer than in 2007 before the global economic crisis.

Answering the government, PSA chief executive Philippe Varin defended the closing of the Aulnay factory, which is 40 years old, saying that "we cannot have a plant that works at half capacity" when "the European market has shrunk by 25 per cent in five years".

Like many French executives, Varin insisted that the cost of labour is too high, which the government disputes, but he has promised to try to find jobs in other factories for some of those laid off and an alternate use for the factory in Aulnay, where Hollande got 62.5 per cent of the vote.

Limited by the budget, the government's response has been weak.

"France is not abandoning its automotive industry," Prime Minister Jean-Marc Ayrault said.

The government will increase bonuses for those buying electric and hybrid vehicles.

It promised more help for subcontractors, more electric charging stations and more research and development.

Montebourg, the minister of industrial recovery, insisted that all but E170 million (RM653 million) of that expenditure would be made up by new taxes on cars that are more polluting, though others are sceptical.

There is little in the government's response that will alter the fundamental problems of French car companies or soften the global industrial competition.

And the government is continuing to add to corporate taxes, making it harder for companies to compete.