EU probes 96-million-euro French aid for Peugeot

BRUSSELS (Reuters) -- The European Commission said today it was investigating whether 96 million euros ($140 million) in French aid to PSA/Peugeot-Citroen for the development of a diesel hybrid car broke EU state aid rules.

"We have to ensure that the aid is not spent on research and development that would have been carried out by Peugeot-Citroen in any event or which its competitors may carry out without state aid," Competition Commissioner Neelie Kroes said.

The car is known as the VHD. Japanese automakers Honda Motor Co and Toyota Motor Corp already produce hybrid vehicles, which cause less pollution than conventional combustion engines.

The Commission said research and development was important for Europe as it contributed to growth and that state-aided R&D could create important incentives.

"However, the Commission has doubts whether Peugeot-Citroen and its partners really need this aid to produce less-polluting cars," the EU executive said in a statement.

"The automobile sector is one of the most R&D intensive in the European economy and similar pro-environment projects have been announced by competitors," it said.

The Commission said it was keen to hear industry views on the questions it raised through the inquiry.

The total R&D cost of the VHD project is 470 million euros.