Under a recovery plan unveiled Wednesday, the French government is set to earmark 350 million euros ($424 million) in subsidies for purchases of electric and hybrid cars, as well as another 450 million euros for companies to modernize their industrial facilities.

The maximum state subsidy for the purchase of an electric car would be increased from 5,000 euros to 7,000 euros, French Industrial Recovery Minister Arnaud Montebourg told a news conference in Paris.

In addition, subsidies for buying a hybrid car would be doubled to 4,000 euros, he said, adding that the aim of the plan was to increase sales of the two types of cars to 25 percent of new registrations.

Describing the aim as "extremely ambitious," France's Prime Minister Jean-Marc Ayrault said that the plan was part of "our very great determination to see the automotive industry recover."

In return for the direct aid to the French car industry, Paris demanded that auto makers retain industrial sites, as well as research and development facilities in France.

Struggling industry

The news came as French carmaker PSA Peugeot Citroen announced a drop in European sales by 15.2 percent in the first half of 2012, resulting in a net loss of 662 million euros alone from the company's auto division.

Europe's second biggest carmakers has already announced 8,000 job cuts in France and the closure of its Aulnay plant near Paris under a cost-cutting program aimed at saving 1.5 billion euros by 2015.

"The depth and persistence of the crisis impacting our business in Europe requires the launch of the reorganization of our French production base and a reduction in our structural costs," PSA Chief Executive Philippe Varin said when he released the company results Wednesday.

The job cuts and the planned closure of PSA's Aulnay plant are likely to become a crucial test for the new government of Socialist President Francois Hollande, as France's powerful trade unions have vowed to wage war over PSA's savings plan.

uhe/kms (Reuters, AFP, dpa)