The government would back the bonds for Banque PSA Finance, and Peugeot would appoint a labor leader and a government representative to its board of directors, said the people, who asked not to be identified discussing ongoing talks. A syndicate of banks would also provide Peugeot's financing unit with news loans which would not have state guarantees, the people said.

Peugeot, Europe's second-largest carmaker after Volkswagen AG, needs the state backing to keep down its borrowing costs, which impact the rate paid by customers. The guarantees would mark the biggest intervention by the French government in the auto industry since 2009 when it provided Peugeot and Renault SA with 6 billion euros in loans.

Peugeot is using up cash as the region's car market heads for its biggest annual drop in 19 years. The carmaker, whose nine-month sales in the region dropped 13 percent, said in July it will eliminate 8,000 jobs and close a factory near Paris. Peugeot has also sold assets and issued 1 billion euros in new shares to raise funds.