France and Germany have reached an agreement on European car policy aimed at supporting the continent’s automotive industry while balancing climate objectives. The deal, announced on Friday in Brussels, reflects a compromise after months of negotiations between the two leading EU economies, which hold significant influence over bloc-wide regulation.
The agreement sets aside the previous goal for the automotive sector to achieve full climate neutrality by 2035, allowing combustion engine vehicles to remain on European roads beyond that date. Instead of binding emission reduction targets, the pact introduces more flexible measures, including an "indicative" rather than mandatory framework for corporate fleet emissions. The two countries also agreed on more favorable regulations for plug-in hybrid vehicles and plans to promote the production of smaller electric cars.
French President Emmanuel Macron emphasized that the decision is intended to support the transformation of the automotive sector while preserving production within Europe. German Chancellor Friedrich Merz described the move as positive for motorists, employment, and industry across France, Germany, and the broader EU. The automotive industry plays a crucial role in the European economy, accounting for approximately 13 million jobs and seven percent of the bloc’s GDP.
A key element of the deal involves subsidy policies and public procurement schemes tied to the origin of car production. France successfully advocated for limiting “Made in Europe” subsidies and contracts to vehicles manufactured within the EU, the United Kingdom, and members of the European Economic Area that comply with the bloc’s tariff rules and foreign subsidy screening. Germany’s initial preference for a broader definition that would include additional trade partners such as Japan, Turkey, and South Korea was scaled back in support of France’s position.
The European Commission had originally proposed that new vehicles reduce carbon dioxide emissions by 90 percent compared to 2021 levels by 2035 while eliminating combustion engines altogether. However, under the new pact, the requirement to offset the remaining emissions through the use of low-carbon materials or other means was removed.
This compromise may affect the EU’s broader climate ambitions and has the potential to strain relationships with some international trade partners excluded from the procurement framework. Critics warn that relaxing emission targets and limiting procurement to European producers could slow progress on environmental goals and complicate trade dynamics.
Nevertheless, the agreement marks a significant step in unblocking stalled EU negotiations around automotive legislation. Both countries secured key priorities in a deal that seeks to balance economic and environmental concerns amid a period of industrial transformation and geopolitical uncertainty. The pact is expected to influence the future direction of European automotive policy and regulation.