Europe's defence push offers hope for France's struggling car suppliers

By Gilles Guillaume

PARIS (Reuters) - A bid by French munitions maker Europlasma for a former Renault foundry is being closely watched by struggling auto suppliers, eager to tap a surge in defence spending as demand from traditional car making shrinks.

Europlasma, a waste treatment firm diversifying into military products, says it will retool the foundry in western France to also make mortar shell casings, scaling up in a few years to become a major manufacturer for Europe.

Its plans, being reviewed by a court overseeing the insolvent plant, come as Europe scrambles to ramp up production of tanks and weapons in response to U.S. President Donald Trump's demands that it takes care of its own defences.

EU foreign policy chief Kaja Kallas will present a proposal to European leaders in Brussels on Thursday to provide Ukraine with two million rounds of large-calibre artillery ammunition, according to a letter seen by Reuters.

"Even though we can never be happy about war-related business, new defence orders can help some automotive sites that are suffering from a lack of work," said Jean-Francois Nanda, a representative with the CFDT union.

France's auto sector is Europe's largest after Germany by job numbers, according to industry association ACEA, but is facing slowing demand and a transition to electric vehicles that require fewer parts. It shed almost 28,000 jobs over the last five years, or 10% of all employees, official data shows.

Suppliers like tyre maker Michelin, driving assistance specialist Valeo and seat and lighting maker Forvia all cut staff last year. Many smaller businesses have had to shut.

Foundries that cast iron parts like suspension arms or steering knuckles for cars can easily switch to making mortar shells, said Europlasma CEO Jerome Garnarche-Creuillot, adding the foundry in Brittany could be making 300,000 shells within a few months and up to 750,000 in three to four years.

UNCERTAINTY

"The advantage of defence is that it's sudden. It instantly compensates for the loss of revenue in the automotive industry," he told Reuters, referring to today's strong demand for munitions.

Europlasma also runs a factory in southwest France making Caesar cannon shells for Franco-German defence firm KNDS, and is gearing up to add shell making to a train wheel factory it bought in northern France, backed by government funding.

France is also aiming to raise 5 billion euros in additional public and private funding for its defence companies, Finance Minister Eric Lombard said on Thursday.

"When you know how to make cars, you can make military vehicles, drones; many companies can do that," said Jean-Michel Jacques, a member of parliament for the administrative area of Morbihan, where the foundry is located.

In Germany, defence companies Rheinmetall and Hensoldt are also looking to use spare capacity in the auto sector.

Factories making the switch to military equipment in France need a permit from the Ministry of Defence, and will also need to step up security.

The foundry workers have reservations, however. "There remains a lot of uncertainty about the actual volumes of shells that will be produced, beyond words and letters of intent," said Mael Le Goff of the CGT union.

He added that defence alone would not be enough to keep the plant going.

Europlasma, which plans to keep 80% of permanent jobs at the foundry, says its offer is contingent on previously committed support from Renault too. The French carmaker, which owned the facility until 2022, is still its main customer.

Spending on defence could change if geopolitical tensions ease, added Garnarche-Creuillot.

"I'm assuming we have roughly five years ahead of us, not 15," he said.

(Reporting by Gilles Guillaume. Additional reporting by Leigh Thomas and Elizabeth Pineau. Editing by Dominique Patton and Mark Potter)