Peugeot told it can't spend £14.4m grant

DTI turns down French car maker's request to use old grant for new production in the UK

Peugeot-Citroën, the French car maker, will admit to unions this week that it cannot spend its £14.4m UK government grant, despite waiting two years for the money.

Peugeot-Citroën, the French car maker, will admit to unions this week that it cannot spend its £14.4m UK government grant, despite waiting two years for the money.

It means the company will have to make another lengthy application for government money to build a new car in the UK which would safeguard 3,000 jobs.

Peugeot has one plant in the UK, at Ryton in Coventry where it makes the 206 car. It has said it will stop production of the popular small car in 2010, but has not said whether it will be replaced with a new model.

Peugeot had hoped that it would be able to use the existing £14.4m grant towards the cost of building a new model. But representatives from the company met officials from the Department of Trade and Industry last week who told them that the money would not be available.

Peugeot had asked the Government for the aid to help build a successor to the 206 - probably the 207 - at the Ryton plant in 2002. But waiting for the European Union to approve it on state-aid grounds meant that the grant was not made until last September, some two years later.

By that time, Peugeot had decided to build the car somewhere else, but it has been hoping that the money could be used for other new models which may be developed in the UK.

At the Geneva motor show last month, Jean Marc Nicolle, the director of group strategy and products, said that production at Ryton was guaranteed until 2010 when the 206 will be withdrawn. He told The Independent on Sunday: "When we decide to build something other than the 207 at Ryton, we will ask the DTI for the grant." The rebuttal from the DTI means this is now impossible.

A spokeswoman from the DTI explained why the grant could not be used: "We would not hand out wads of cash and say, 'Spend it on something else'. Grants are made for specific projects." She added that Peugeot would have to start the whole process again if it wished to make a new application. She could not say how long the second application was likely to take.

Unions had also been expecting that the £14.4m grant could still be used, but were upbeat about the prospects of the Ryton plant. An Amicus union representative for the plant who will meet management this week to discuss its future said: "Not getting the grant would not alter their plans. Peugeot is a massive company. If they have made their decision about producing a new car at Ryton, Peugeot will do it with the grant or not."

Also at the Geneva motor show last month, Peugeot unveiled three new cars developed as part of its joint venture with Japanese car maker Toyota: the Toyota Aygo, the Citroën C1 and the Peugeot 107.

The three compact models will be jointly produced at the Kolin production site in the Czech Republic.