The seven grandchildren of founder Louis Renault said after the Paris court's ruling that they would appeal the decision.
They took the French state to court after a new judicial procedure was introduced to allow plaintiffs to challenge the constitutionality of legislation.
Louis Renault founded what is now one of France's biggest car makers with his brothers in 1898. During the Nazi occupation the company was placed under German control and used to make equipment for German forces.
Louis Renault died in jail weeks after Paris was liberated from the Nazis, before he could be tried for collaboration, and the firm was promptly nationalized. The French state remains the biggest single shareholder.
The heirs' lawyer, Thierry Levy, said the nationalisation was a "violation of fundamental legal and property rights" and that his clients deserved compensation.
But a lawyer for a union that as a civil party is asking for the request to be quashed, Jean-Paul Teissonniere, urged the court to reject the"revisionist" move.
"I am stunned by the audacity of the Renault heirs," he said.
During World War II, Teissonniere said, "a very large majority of Renault's production went to the enemy," the company did not assist the French Resistance, nor did it "ask its workers to sabotage" production.
"We are dealing with a revisionist discourse, because we are being asked to rehabilitate someone who saw his goods confiscated for collaborating with the enemy," Teissonniere said.
Levy responded angrily, saying it was an "outrageous accusation" to accuse the family of being revisionist and that the lawyer could be sued for defamation if he were not speaking in court.