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Chancellor Merz seeks dialogue with auto industry first

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Automakers seek flexibility on EU target, citing

competition

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German government allocates 3 billion euros for EV

subsidies

(Adds SPD paper, minister in paragraphs 6-8, adds VDA

association in 11, adds VW CEO in 12-13)

BERLIN, Oct 9 (Reuters) - Chancellor Friedrich Merz will

meet executives from top German automakers later on Thursday

without a unified government position on the European Union's

plans to end the sale of carbon dioxide-emitting cars from 2035,

he told journalists.

Thursday's statement backs away from the chancellor's

previous line on pushing Brussels to drop the ban as his SPD

coalition partners have struggled with internal divisions.

The government first wants to talk to the car industry about

what it needs as well as wait for the outcome of the European

Commission's review of the target due by year-end, Merz said.

"That is why, as agreed, we did not reach a final assessment

yesterday evening. Instead, we want to engage in dialogue in

order to arrive at an assessment through dialogue," he said at a

press conference with senior cabinet members after discussions

on pensions and job benefits that went deep into the night.

COALITION PARTNER WANTS TECHNOLOGICAL FREEDOM

Merz also announced an additional 3 billion euros ($3.5

billion) in subsidies to support electric vehicle purchases by

middle- and lower-income households.

Ahead of the meeting, the SPD reaffirmed its commitment to

the 2035 climate goals but called for greater flexibility in the

transition until then.

"What is needed here is clear technological freedom, rather

than a rigid ideological requirement," said Finance Minister

Lars Klingbeil of the SPD at the press conference.

"We still have different paths to get there," but Thursday's

meeting will be another big step forward, he said.

CAR INDUSTRY WANTS MORE TECHNOLOGY OPTIONS

The EU has set a target for a 100% reduction of CO2

emissions from new cars and vans by 2035, with intermediate 2030

targets, which has been taken to mean the end of the internal

combustion engine for new vehicles.

But European automakers, facing stiff competition from China

and U.S. tariffs, argue the timeline is unrealistic.

They are urging Brussels to extend compliance deadlines and

broaden the definition of acceptable technologies.

Plug-in hybrids and range extenders should remain available

to consumers, said Hildegard Müller, head of Germany's VDA auto

association, who will attend the meeting.

Mercedes-Benz CEO Ola Kaellenius also said a certain

proportion of highly efficient, electrified combustion engines

should be permitted beyond 2035.

"We still need a few side roads," he told business

publication manager magazin in an interview published on

Thursday.

($1 = 0.8612 euros)