Peugeot and Renault line up a cavalcade France's two national carmakers, PSA Peugeot Citroën and Renault, will aim to dazzle the world's motoring media on their home turf at this week's Paris auto show with a cavalcade of new cars. At the show, which begins on Thursday, Peugeot will be presenting no fewer than 40 cars on its 3,900 sq m stand, including the Onyx, a rakishly designed "concept" supercar that would look at home parked next to a Lamborghini. Renault will unveil a fourth-generation of its Clio hatchback, the first production-ready car to have been designed by Laurens van den Acker, the design chief brought in three years ago to spice up a line-up some reviewers had criticised as too drab. But the French producers" shiny new wheels belie a crisis of shrinking markets and too many factories making too many similar cars, reminders of which will never be far away. Workers from Peugeot's plant in Aulnay-sous-Bois, in suburban Paris, which the carmaker is closing as it seeks to stop bleeding cash at a rate of €200m a month, have scheduled a demonstration at the show on October 9. The European car industry's huge capacity overhang and ruinous price wars will be top topics of conversation as chief executives including Peugeot's Philippe Varin, Renault/Nissan's Carlos Ghosn and Fiat's Sergio Marchionne gather at the show. Peugeot and Renault are, alongside Fiat, Ford Motor and General Motors" Opel division, among the most vulnerable carmakers in the downturn. France's car market is down 13 per cent this year and both companies have significant sales in depressed Italy and Spain too. Renault, with a bigger overseas business and low-cost plants in Romania and Morocco, is the less financially troubled of the two, as Mr Ghosn will undoubtedly emphasise in interviews at the show. However, both companies specialise in the small, low-margin cars most vulnerable to the competitive price-slashing that is pushing most of the continent's producers into financial losses this year. PSA lost €819m before tax in the first half of this year; Renault, helped by its affiliates including Nissan, reported sharply lower net income of €786m and negative cash flow of €200m in the first half. Both are being squeezed on two fronts by Germany's premium carmakers and Volkswagen from above, and from below by the rising South Korean producers Hyundai and Kia. VW and the Koreans have been taking market share from the French in their home market, prompting French industry minister Arnaud Montebourg to accuse Hyundai and Kia of "dumping," a charge those companies reject. Peugeot warns of state interference Directors at PSA Peugeot Citroën will be looking on with wry amusement as Tom Enders, EADS chief executive, seeks to make his company "normal" by cutting the stake held by the French government, writes James Boxell in Paris. Mr Enders hopes that stripping the French government of its veto rights over senior appointments and strategic decisions, while diluting its shareholding from 15 per cent to 9 per cent, will stop Paris meddling in the aerospace company's affairs. The experience of Peugeot in recent months, which has decided to close a car plant just outside Paris and cut about 6,000 French jobs, suggests he may be in for a surprise even if he gets his way on cutting the stake. To continue reading, click here "This is critical for both Peugeot and Renault," says Emmanuel Bulle, the Fitch Ratings analyst. They are stuck in the middle and will be crushed on the one hand by the Germans going down into lower categories and the Koreans going the same path as the Japanese a few years ago and offering better products. In Paris, VW will unveil the seventh generation of the Golf, perennially Europe's best-selling car. VW will build it on shared architecture with Audi's A3 and several other vehicles, allowing it to leverage a cost advantage that is increasingly helping the German giant to outmanoeuvre its competitors. In addition to VW's stronger brand power and superior economies of scale, the group can access financing more cheaply than its weaker rivals, which it can pass on to customers in the form of cheaper car loans. "In terms of total cost of ownership, it makes more sense for a consumer to go for a German product - you've got lower financing costs and higher residual values," says Erich Hauser, the Credit Suisse analyst. Faced with this competitive squeeze, France's carmakers have two choices: either to battle with VW and the Koreans model by model, or to withdraw strategically from markets or segments where they cannot. The choice facing France's carmakers - and their hardest-pressed competitors - mirrors the dilemma facing European governments during the debt crisis: whether to retreat into austerity and hoard cash or to use stimulus to grow out of trouble. Fiat, which has slowed its new-car pipeline to a crawl during the crisis, is taking the former approach. The company, apparently calculating that it makes little sense launching new models on to a market where it cannot make money, will not be showing any new cars in Paris. However, both French carmakers - especially Peugeot - are responding robustly to VW and the Koreans" challenge with new vehicles targeting the same car buyers in Europe and overseas. "Peugeot have more products being launched than most of the other manufacturers," says Jonathon Poskitt, head of European sales forecasting at LMC Automotive. There seems to be something of a product onslaught. Peugeot's offer will include the concept 2008, a crossover vehicle that will target urban consumers in emerging markets, which the company says it will make in France, China and Brazil. Its sister Citroën brand will show a cabriolet version of its premium-priced DS3. Renault, targeting the profitable low-cost end of the market, will show second-generation versions of its Romanian Dacia brand's Logan saloon and Sandero hatchback. Mr Ghosn has said it earns a margin of more than 6 per cent on its low-cost cars, in part because it does not offer discounts on them. "Every low-cost car they sell is worth two to three normal ones," says Philippe Houchois, UBS autos analyst. But two to three years out, the risk is that competitors will come in.