The French state took control of Louis Renault’s firm after World War II, when, under German control, it was used to make equipment for German forces.
The company is now one of France’s largest car-makers and the state remains the single biggest shareholder.
The Paris court said it was not competent to rule on the matter.
The seven grandchildren of Louis Renault, who died in jail before he could be tried for alleged collaboration with the Nazis, said they would appeal against the court’s decision.
They were able to take the French state to court after a new judicial procedure was introduced, allowing plaintiffs to challenge the constitutionality of legislation.
Their lawyer, Thierry Levy, had argued that the firm’s nationalisation was a “violation of fundamental legal and property rights”.
Renault’s grandchildren, who previously tried to obtain redress in 1959, say their grandfather was never brought to trial over the allegations against him.
They also say that there has been no other case of a firm being nationalised without a ruling or compensation.
But a lawyer for a union that as a civil party is asking for the request to be quashed had asked the court to reject what he said was a “revisionist” move.
“I am stunned by the audacity of the Renault heirs,” Jean-Paul Teissonniere said.
He added that during the war “a very large majority of Renault’s production went to the enemy,” adding that the company did not assist the French Resistance or did it “ask its workers to sabotage” production.
Mr Levy said the accusation that the family were revisionist was “outrageous”.
The French state remains the largest shareholder in Renault, which was founded in 1898, with a 15% stake.
Renault designed his first car in 1898. With financial support from his brothers, he set up a factory in Boulogne-Billancourt quickly becoming one of the largest car manufacturers in France.
During World War I, he was awarded the Legion of Honour for his services to the war effort, designing and manufacturing tanks that would turn the course of battle.
But the hero of World War I quickly became a villain of the second, and the British RAF bombed his factories on several occasions.
The seven grandchildren had argued in court their grandfather was given no choice but to collaborate with the Wehrmacht producing over 30,000 cars and trucks.
His actions, they said, had saved 40,000 workers from being forcibly relocated to Daimler-Benz in Germany.
In 1945 – several months after Louis Renault’s death in prison – Charles de Gaulle denounced the car-maker and signed a decree nationalising his company without a single cent in compensation for the family.
In 1956, his widow, Christiane, claimed Renault had been murdered in prison.
The battle for compensation has sparked outrage in France with both the Communist Party and Holocaust survivors accusing the family of “trying to rewrite history”.
French court rejects Renault heirs’ challenge
A French court has rejected a bid by heirs of the founder of Renault for compensation for the loss of the car firm, nationalised in 1945.
January 11, 2012