# EUR-Lex - 31997Y0915(01) - EN

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# 31997Y0915(01)

**Information from the Commission - Community Framework For State aid to the motor vehicle industry (Text with EEA relevance) **

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Official Journal C 279 , 15/09/1997 P. 0001 - 0008 *

COMMUNITY FRAMEWORK FOR STATE AID TO THE MOTOR VEHICLE INDUSTRY (97/C 279/01)

(Text with EEA relevance)

1. UTILITY AND SCOPE OF THE FRAMEWORK

(a) Background

Because of its considerable importance in the fields of employment, trade and technological development, the motor vehicle industry is generally regarded as a strategic industry by most Member States. In the period 1970 to 1980, the Governments of several Member States injected massive amounts of aid into the modernization and development, or indeed the survival, of their domestic car industry (1). This action caused a subsidy race among the Member States and led to a number of distortions of competition. As a result, the Commission introduced a Community framework for State aid to the motor vehicle industry in 1989 (2), (hereinafter 'the framework`) with the twofold aim of increasing the transparency of aid flows and imposing strict discipline in the granting of such aid in order to reduce distortion of competition in the Community industry to a minimum. At that time, the industry in Europe had not experienced surplus production capacity; however, intra-Community trade in vehicles and engines was extensive and alone ensured that the industry was a sensitive one.

The framework was adopted on the basis of Article 93 (1) of the EC Treaty for three years (3), after which the Commission would review its scope and utility. In December 1990, the Commission decided to extend the framework without setting a time limit for its application, but undertaking to review it after two years and decide on possible modifications or its abolition following consultation with the Member States (4). On 23 December 1992, after consulting the Member States, the Commission decided (5) not to modify the framework and to extend it until a further review. Following an action brought by Spain, the Court of Justice of the European Communities ruled in its judgment of 29 June 1995 in Case C-135/93, Spain v. Commission (6), that the decision should be regarded as a limited extension, until a future review of the framework which, in the present case, was to take place no later than 31 December 1994. In the light of that judgment, the Commission proposed to the Member States on 5 July 1995 that the framework be reintroduced by 1 January 1996 at the latest in the form of an appropriate measure within the meaning of Article 93 (1) of the Treaty, and that it include certain changes such as raising the notification threshold to ECU 17 million (7). The Commission also informed the Member States that it might re-examine, possibly revise or abolish the framework after two years, depending on the status of a possible horizontal framework (8).

In 1996, the Commission carried out an in-depth study of the framework with the help of independent consultants which concluded that the framework was generally effective and recommended certain adjustments concerning, in particular, the notification thresholds, the definition of the sector and the methods of carrying out the cost-benefit analysis.

On the basis of the report, the Commission presented its new draft Community framework for State aid to the motor vehicle industry for examination by the representatives of the Member States at a multilateral meeting, then decided to propose it to the Member States as an appropriate measure under Article 93 (1) of the Treaty.

(b) General background

The motor vehicle industry is of great importance to the Community's economy. Experts reckon that as many as 10 jobs depend on each job in that industry; it employs, directly and indirectly, nearly 10 % of the active population. Furthermore, the industry is experiencing faster globalization of its markets. European manufacturers and their component suppliers are faced with a steady increase in competitors on their traditional markets; their response is to maintain or strengthen their commercial plant locations on the prime export markets, often setting up local production plants in central Europe, Asia or South America.

However, as the Commission noted in its communication of 10 July 1996 (9) on the European motor vehicle industry, production capacity utilization rate has been below 80 % since 1993 among most of the major European manufacturers. It is unlikely that the rate will improve significantly in the medium term (10), as the motor vehicle industry will form part of a general context of weak growth on a mature and cyclical market.

Much progress has been made in recent years by European industries, for instance in the area of gains in productivity and quality of manufacture; they are thus approaching the best world standards. However, efforts to catch up with the United States or Japan entail a stronger emphasis on intangible investments, especially in R& D and training, the development of industrial cooperation, modernization of the role of public authorities, creation of a stable and favourable economic climate and a guarantee of effective competition (11). Adjusting the framework to bring it into line with the new economic situation is fully consistent with those targets.

The Commission has therefore decided to propose to the Member States that, pursuant to Article 93 (3) of the Treaty, they give prior notification of the most significant aid cases in the motor vehicle industry, as from 1 January 1998, in accordance with the rules defined below.

2. RULES ON NOTIFICATION

2.1. Definition of the industry

The 'motor vehicle industry` means the development, manufacture and assembly of 'motor vehicles`, 'engines` for motor vehicles and 'modules or sub-systems` for such vehicles or engines, either direct by a manufacturer or by a 'first-tier component supplier` and, in the latter case, only in the context of an 'overall project`.

(a) Motor vehicles

The term 'motor vehicles` means passenger cars, vans, trucks, road tractors, buses, coaches and other commercial vehicles. It does not include racing cars, vehicles intended for off-road use (for example, vehicles designed for use on snow or for carrying persons on golf courses), motorcycles, trailers, agricultural and forestry tractors, caravans, special purpose vehicles (for example, firefighting vehicles, mobile workshops), dump trucks, works' trucks (for example, fok lift trucks, straddle carrier trucks and platform trucks) and military vehicles intended for armies.

(b) Engines for motor vehicles

The term 'motor vehicle engines` means compression and spark ignition engines as well as electric motors and turbine, gas, hybrid or other engines for motor vehicles.

(c) Modules and sub-systems

A 'module` or a 'sub-system` means a set of primary components intended for a vehicle or engine which is produced, assembled or fitted by a first-tier component supplier and supplied through a computerized ordering system or on a just-in-time basis.

Logistical supply and storage systems and subcontracted complete operations which form part of the production chain, such as the painting of sub-assemblies, should likewise be classified among these modules and sub-systems.

(d) First-tier component suppliers

A 'first-tier component supplier` means a supplier, whether independent or not, supplying a manufacturer, sharing responsibility for design and development (12), and manufacturing, assembling or supplying a vehicle manufacturer during the manufacturing or assembly stage with sub-assemblies or modules. As industrial partners, such suppliers are often linked to a manufacturer by a contract of approximately the same duration as the life of the model (for example, until the model is restyled). A first-tier component supplier may also supply services, especially logistical services, such as the management of a supply centre.

(e) Overall project

A manufacturer may, on the actual site of the investment or in one or several industrial parks in fairly close geographical proximity (13), integrate one or more projects of first-tier component suppliers for the supply of modules or sub-systems for the vehicles or engines being produced. An 'overall project` means one which groups together such projects.

An overall project lasts for the life of the vehicle manufacturer's investment project.

An investment of one first-tier component supplier is integrated within the definition of a global project if at least half the output resulting from that investment is delivered to the manufacturer concerned at the plant in question.

2.2. Aid to be notified

The purpose of prior notification of Member States' plans to grant aid is to allow the Commission to check as thoroughly as possible that aid envisaged for the motor vehicle industry is compatible with the competition rules of the Treaty.

(a) Aid under an approved scheme

All aid which the public authorities plans to grant to an individual project or an overall project under authorized aid schemes for a firm or firms operating in the motor vehicle industry must, in accordance with Article 93 (3) of the Treaty, be notified before being granted if either of the following thresholds is reached:

- nominal amount of the investment project (14) (total cost of the project (15)): ECU 50 million,

or

- total gross aid for the project (16), whether State aid or aid from Community instruments (Structural Funds and framework programmes), irrespective of the form and objectives of the measure: ECU 5 million.

The Commission then analyses the projects of the manufacturer and each first-tier component supplier in order to determine the compatibility of each of the aid measures envisaged.

(b) Ad-hoc aid

Any aid which the public authorities intend to grant outside an approved scheme to one (or several) undertaking(s) operating in the motor vehicle sector defined above must be notified in advance under Article 93 (3) of the Treaty, unless it complies with the thresholds and rules of the Commission notice on the de minimis rule for State aid (17).

(c) Rescue and restructuring aid for firms in difficulty

Any rescue and restructuring aid which public authorities plan to grant to one (or several) undertakings operating in the motor vehicle industry must be notified in advance under Article 93 (3) of the Treaty, unless it complies with the thresholds and rules of the notice on the de minimis rule for State aid.

(d) Notification

State aid must be notified on the form attached at Annex II, supplemented by an appropriate form to be obtained from the Directorate-General for Competition.

All notifications must be sent directly to the Secretariat-General of the Commission.

Member States should attach any relevant supporting documents to the notification forms. As regards regional aid in particular, studies on the final plant location site should be provided wherever available.

2.3. Ex post control and assessment

In its decision, the Commission may require ex post monitoring and assessment of aid already granted, the amount of detail varying according to the case and the potential distortion of competition.

In any event, a copy of the final aid contract concluded by the Member State and the undertaking receiving the aid must be sent to the Commission immediately after signing by the parties.

In order to enable the Commission to check that its decision has been complied with, the Member States, with the assistance of the aid recipients, must submit an interim report on the aid payments or a copy of the interim report on performance of the aid contract, followed by a final report on the objectives, in terms of timetable, investments and compliance with the specific conditions imposed by the Member State, and the actual achievements at the end.

2.4. Annual report

Member States are requested to provide the Commission with an annual report giving data on all aid, whatever its form, granted in the past year to undertakings in the motor vehicle industry. Aid which does not have to be notified must also be mentioned in the annual report.

The model form for the annual report must be sent by 1 April of the year following the reference year to the Directorate-General for Competition.

Annual reports may be communicated in their original language at the request of a Member State.

2.5. Community instruments

In view of the need to ensure that the measures financed by the Structural Funds or benefiting from aid from the European Investment Bank (EIB) or other financial instrument comply with Articles 92, 93 and 94 of the Treaty, the Commission has a duty to monitor all aid applications and authorizations under Community instruments and ensure that they are consistent with these guidelines.

2.6. Entry into force and duration

This framework will enter into force on 1 January 1998; the preceding framework, which entered into force on 1 January 1996 for two years, will serve as a basis for the assessment of aid proposals which were notified before 1 November 1997 but which have not yet been declared compatible by the Commission or are the subject of proceedings under Article 93 (2) of the Treaty initiated before that date.

This framework will apply for three years. At the end of that period, the Commission will decide whether to extend it, in particular in the light of the status of the proposed multisectoral framework.

3. GUIDELINES FOR ASSESSMENT OF AID

The assessment of aid must take account of general economic and industrial factors, sectoral considerations and regional, environmental and social factors. The Commission does not intend, however, to impose an industrial strategy on the sector, it is preferable for a strategy to be defined within the sector and the market. The Commission's aim continues to be to make sure that motor vehicle manufacturers in the Community operate in a climate of fair competition. To that end, the Commission endeavours to limit distortions of competition caused by certain aid measures and to maintain a competitive environment which boosts competitiveness and productivity in the sector.

Thus the criteria which the Commission uses to assess aid vary according to the objectives of the aid in question. It checks, however, that in every instance the aid granted is both proportional to the gravity of the problems to be resolved and is necessary for the realization of the project. Both tests, proportionality and necessity, must be satisfied if the Commission is to authorize State aid in the motor vehicle industry. All forms of aid described above are assessed directly on that basis.

A notification of a project may contain various types of aid; each one will be analysed on the basis of its own rules of assessment.

3.1. Rescue and restructuring aid for firms in difficulty

Rescue and restructuring aid is assessed under the Community guidelines on State aid for rescuing and restructuring firms in difficulty (18), without prejudice to the second subparagraph. The Commission ensures in particular that restructuring aid, like rescue aid, is in principle a one-off operation.

As structural overcapacity in the motor vehicle industry is set to continue until the end of the decade, the Commission will prohibit State aid which is aimed at a net increase in production capacity. In addition, the Commission will usually require a reduction in installed capacity. The Commission also considers it necessary for the reduction in production capacity to be proportional to the intensity of the aid, being the amount of the aid divided by the cost of restructuring.

3.2. Regional aid

The motor vehicle industry may benefit from regional aid to assist new plants and the extension of existing ones in the assisted areas of the Community, thus making a valuable contribution to regional development by creating or safeguarding often highly skilled jobs and through significant indirect effects.

Prior notification allows the Commission to compare the advantages from the standpoint of regional development with any unfavourable consequences for the sector as a whole. The purpose of the comparison, in the form of a cost-benefit analysis, is not to deny the essential contribution made by regional aid to cohesion at Community level but to ensure that other factors affecting the Community, such as development and the general competitiveness of the industry in Europe, as well as respect for fair competition, are also taken into consideration.

(a) Necessity

In order to demonstrate the necessity for regional aid, the aid recipient (19) must clearly prove that it has an economically viable alternative location for its project or sub-part(s) of a project. If there were no other industrial site, whether new or in existence, capable of receiving the investment in question within the group, the undertaking would be compelled to carry out its project in the sole plant available, even in the absence of aid.

The existence of a viable alternative defines the 'mobility` of a project; mobility may if necessary be demonstrated by investors (20) on the basis of studies they have carried out in order to identify the final location. That alternative site is not always located in the Community. However, the Commission verifies the likelihood of the alternative, particularly when the relevant markets are considered.

Thus, to authorize regional aid, the Commission studies the geographical mobility of the notified project, after checking that the region in question is eligible for aid under Community law. No regional aid may be authorized for a project or parts of a project that are not geographically mobile.

In demonstrating the mobility of a project, where the alternative location is not in the EEA or in one of the countries of Central and Eastern Europe (CEEC), an investor must prove, notably by means of a location study, that at least one commercially viable alternative to the location chosen has been considered in the EEA or in one of the Central and East European countries (CEEC). Otherwise, the location chosen will be considered to be the best one. Consequently, only regional aid may be authorized whose intensity does not exceed the threshold (defined in paragraph 3.2 (c)) below which it is not necessary to carry out a cost-benefit analysis.

Regional aid intended for modernization and rationalization, which is generally not mobile, is not authorized in the motor vehicle industry (see paragraph 3.7).

In view of the characteristics of industrial activity in the motor vehicle industry, entire production lines that are obsolete are sometimes dismantled. Such occurrences, although rare, may involve an element of mobility inasmuch as a firm is often faced with the choice of adapting the existing plant or closing it and setting up a new plant elsewhere, either in the form of an extension or on a greenfield site. A radical change in production structures of this nature on the existing site is called a 'transformation` (21), it may be eligible for regional aid.

Finally, transformation is not the same as 'restructuring`, the latter being applicable to firms in financial difficulties.

(b) Eligibility of costs

The Commission determines whether nor not costs relating to the mobile aspects of a project are eligible; eligibility is defined by the regional scheme applicable in the assisted region concerned.

(c) Proportionality of aid

When considering the mobile aspects of a project, the Commission satisfies itself that the planned aid is in proportion to the regional problems it is intended to help resolve. To that end, the cost-benefit analysis method is used. For the sake of transparency, a copy of the standard notification forms for a cost-benefit analysis is attached at Annex II to this document.

Until the Commission has approved the regional maps in accordance with the new regional guidelines, which it should do by 1 January 2000, if the intensity of the planned regional aid is 10 % (22) or less of the regional ceiling, a cost-benefit analysis will not be required by the Commission. This is because a mobile project located in an assisted region always suffers from minimum disadvantages. After that date, and in so far as the new regional maps have lower ceilings, the minimum intensity triggering a cost-benefit analysis will be 20 % of the new regional ceiling.

A cost-benefit analysis compares, with regard to the mobile elements, the costs which an investor would bear in order to carry out its project in the region in question with those it would bear for an identical project in a different location, which makes it possible to determine the specific handicaps of the assisted region concerned. The Commission authorizes regional aid within the limit of the regional handicaps resulting from the investment in the comparator plant.

In the cost-benefit analysis, the comparator plant must be located in the EEA or in the countries of Central and Eastern Europe (CEEC) if the purpose of the investment is the manufacture of vehicles and parts of vehicles intended largely for the European markets (23).

If the cost-benefit analysis takes as comparator a location in another assisted area within the meaning of Article 92 (3) of the Treaty or Article 61 (3) of the EEA Agreement, any difference in the regional aid rate is neither an advantage nor a handicap for the cost-benefit analysis; it is regarded as neutral by definition.

As stated in paragraph 2.2 (d) ('Notification`) of these guidelines, studies on the choice of plant location must be submitted to the Commission whenever available in order to facilitate processing of the case and speed up the final decision.

Operational handicaps are assessed over three years in the case of expansion projects and five years in the case of new plants on greenfield sites. The Commission believes that these periods are generally consistent with the time needed to overcome start-up difficulties and reach target operational levels in each case.

New plant means new plant on a new site which has not yet been developed. In such cases, compared with plant expansion, undertakings are faced with the following specific problems: lack of adequate infrastructure, lack of organized logistics, lack of a workforce specifically trained for the needs of the undertaking and lack of a sub-contracting structure. If, however, such services can be provided by a unit of the same group located in close proximity, the project is regarded, in accordance with Commission Decision 96/666/EC, as an expansion, even if it is actually built on a greenfield site (24).

In the case of an overall project, the first-tier component suppliers concerned may each benefit from the same regional handicap percentage as the vehicle manufacturer, as calculated by the cost-benefit analysis, no individual cost-benefit analysis being applied to them. However, if a first-tier component supplier taking part in an overall project considers it has the specific regional handicaps that would give it a higher aid intensity, it may request a separate cost-benefit analysis the results of which will be applied irrespective of the outcome.

(d) Analysis of the effects on the industry and on competition

In view of the sensitive character of the motor vehicle industry, the Commission proposes to study the effects on competition of every investment project, looking in particular at variations in production capacity (25) on the relevant market in the group concerned (26).

For these reasons, an adjustment (top-up) will be calculated, as follows:

>TABLE>

The top-up is expressed in terms of percentage points to be added to or subtracted from the intensity allowable according to the cost-benefit analysis.

The impact on the industry is 'high` where the ratio between the capacity of the group after the investment (C(f)) and the capacity of the group before the investment (C(i)) is 1,01 or over.

The impact is 'moderate` where 0,99 < C(f) / C(i) < 1,01 or where a new segment is created on the relevant market.

The impact is 'negligible` where C(f)/C(i) is 0,99 or under.

The distinction between Article 92 (3) (a) regions and Article 92 (3) (c) regions is needed in order to take better account of the difficulties encountered in each region and to increase the incentive effect of regional aid on investors.

(e) Determination of aid intensity

The authorized aid, expressed as a gross grant equivalent, may not exceed the total of the amounts calculated in stages (a) to (d) (mobility, eligible investments, identification of regional handicaps, possible top-up) and usually discounted and expressed as a percentage of eligible investment so that they can be compared with the gross grant equivalent of the assisted region. The aid may not exceed the regional ceiling applicable to the type of undertaking concerned.

3.3. Research and development aid

Aid for R& D will be assessed under the Community framework for State aid for research and development (27).

The Commission carries out a thorough analysis of the breakdown of costs between the different categories of R& D; investors must clearly distinguish industrial research and genuine precompetitive development from the introduction of new technology in the form of productive investment or competitive development.

3.4. Investment aid for innovation

Innovation means the development and industrialization in Europe, the EEA and the countries of Central and Eastern Europe (CEEC) of genuinely or substantially new products or processes, that is products or processes which have not yet been used or marketed by other parties operating in the industry. A genuine innovation carries a risk of failure; the Commission will take account of the scale of this risk when it assesses the intensity of the aid envisaged.

In general, the European motor vehicle industry needs to improve its competitiveness as compared with its United States, Japanese and Korean competitors. To that end, it should for example improve its ability to innovate in order further to reduce the technological and industrial gap (28).

Investment aid for innovation will therefore be authorized only in duly justified cases, as an incentive to industrial or technological risk-taking.

The maximum intensity of such aid is set at 10 % of all eligible costs, corresponding to engineering activities and investments of direct and exclusive relevance to the innovative part of the project.

An innovative project must concern only one plant location (29) within the same group in the motor vehicle industry; no aid will be granted for parts of the project carried out in other branches of a group.

3.5. Aid for environmental protection and energy saving

Aid to combat pollution in general, that is aid granted under the Community guidelines on State aid for environmental protection (30), may be regarded as compatible.

It should be noted that those guidelines involve complex technical evaluations of such things as the 'ecological` costs incurred by the investor. Moreover, when it assesses the compatibility of aid, the Commission makes a thorough study of the cost savings on energy, raw materials and so on which the investor has secured as a result of the environmental protection component in the project.

3.6. Aid to vocational training

The Commission has a generally positive attitude towards training, retraining and reconversion programmes. State aid for such purposes will be scrutinized to ensure that it is not used solely to reduce the costs a firm would normally bear.

The Commission will soon adopt a Community framework for training aid which will also apply to the motor vehicle industry.

3.7. Aid for modernization and rationalization

Modernization and rationalization are essential if an undertaking is to remain competitive on a world market. However, they present a very high risk of distortion of competition and should normally be financed from a company's own funds.

If an undertaking competing on an international market is unable to finance its own modernization and restructuring, its ability to compete and its viability will eventually disappear. No aid for modernization or rationalization may therefore be granted to undertakings in the motor vehicle industry.

3.8. Operating aid

Operating aid creates lasting distortions of competition in sectors such as the motor vehicle industry. No new operating aid will therefore be authorized by the Commission, even in assisted areas. Furthermore, on the basis of Article 93 (1) of the Treaty, the Commission will suggest that Member States currently granting this type of aid under existing schemes should gradually abolish operating aid benefiting one or several undertakings in the motor vehicle industry.

(1) In the period 1977 to 1987, State aid to the motor vehicle industry, essentially in the form of capital injections or extensive debt write-offs, is estimated at ECU 26 billion. Between1989, when the framework entered into force, and July 1996, the Commission approved ECU 5,4 billion of aid to the industry.

(2) OJ C 123, 18. 5. 1989, p. 3.

(3) The application of the framework was delayed for the first six months of 1989 pending its approval by 10 Member States, until January 1990 for Spain and May 1990 for Germany; Spain and Germany had originally been opposed to its application.

(4) OJ C 81, 26. 3. 1991, p. 4.

(5) OJ C 36, 10. 2. 1993, p. 17.

(6) [1995] ECR I-1651.

(7) OJ C 284, 28. 10. 1995, p. 3.

(8) On 25 April 1997, in Case C-292/95, Spain v. Commission, the Court of Justice annulled the Commission decision of July 1995 to extend, with retroactive effect to 1 January 1995, the framework to 31 December 1995 pending the reintroduction of the framework for a period of two years from 1 January 1996 to 31 December 1997.

(9) COM(96) 327 final.

(10) A survey conducted in the first half of 1996 among all vehicle manufacturers in the Community and the EEA revealed that the production capacity utilization rate in 1995 was 71 %, that is an installed capacity of 18,1 million vehicles as against an annual output of 12,9 million vehicles.

(11) See footnote 9.

(12) Design and development often take place on the project site of the manufacturer.

(13) This proximity could inter alia take the form of a fixed link (automated conveyor belt for example) allowing the delivery of modules directly into the car factory.

(14) An investment project is usually defined as an investment by an undertaking in new assets that are necessary to set up, expand, modernize or rationalize production facilities on a specific industrial site. An investment project should not be artificially broken down into several sub-projects and/or over several financial years in order to avoid the obligation to notify.

(15) The total cost of a project is defined as follows: total expenditure by an undertaking on the acquisition of new tangible and intangible fixed assets which are part of an investment project and will be depreciated (or leased) during their lifetime. Consequently, the cost is equal to the amount of capital invested in a project. The cost of the project may be different from the cost that is eligible for State aid (see paragraph 3.2 (b)).

(16) The gross aid is obtained by adding the grants and grant equivalents of the aid envisaged; if aid is granted net of tax, it should be changed into gross equivalent aid by taking account of the tax effect wherever possible.

(17) Currently OJ C 68, 6. 3. 1996, p. 9.

(18) Currently OJ C 368, 23. 12. 1994, p. 12.

(19) A project put forward by first-tier module or sub-system suppliers that is directly linked to a mobile investment by a motor vehicle manufacturer will by definition be considered mobile itself. A supplier's project may be mobile even if the manufacturer's project is not; the supplier would have to be able to satisfy the Commission on this point.

(20) Mobility alone is not always sufficient to establish the necessity for aid; for example, the site chosen may have net competitive advantages in comparison with the alternative proposed by the investor.

(21) 'Transformation` means the complete dismantling of bodywork lines (motor vehicles) or power plant lines (engines) and, simultaneously, of the final assembly lines of the plant in question and the setting-up of new bodywork lines, power plant lines and final assembly lines in an overall production structure that is clearly different from the previous one.

(22) Se State aid Case N 781/96, Ford Bridgend, OJ C 139, 6. 5. 1997, p. 4.

(23) The study of the mobility of the investment and the cost-benefit analysis may be carried out using different alternative locations.

(24) OJ L 308, 29. 11. 1996, p. 46.

(25) Because of the structural overcapacity in the industry.

(26) The relevant product market covers the products (and possibly the services) referred to in the investment project and their possible substitutes from the consumer's standpoint (on the basis of product characteristics, prices and intended use) and that of the producer (plant flexibility). The relevant geographic market in principle covers the EEA and the countries of Central and Eastern Europe (CEEC).

(27) Currently OJ C 45, 17. 2. 1996, p. 5.

(28) The gap can be illustrated by the average time required to build a vehicle: 25 hours in Europe, 22 hours in the United States and 16 hours in Japan (see footnote 9).

(29) Or a small number of sites if different complementary sub-projects take place on a small number of sites.

(30) OJ C 72, 10. 3. 1994, p. 3.

ANNEX I

COST-BENEFIT ANALYSIS IN THE CONTEXT OF THE EC FRAMEWORK ON STATE AID TO THE AUTOMOTIVE INDUSTRY

Page

1. Regional aid versus distortion of competition . 10

1.1. Effects on the sector . 10

1.2. Balance: how to assess it . 10

2. Cost-benefit analysis and Commission's approach . 10

2.1. What is cost-benefit analysis? . 10

2.2. Commission's approach . 11

2.3. Market-impact analysis . 12

2.4. Technical expert report and confidentiality . 12

3. How to do it (an explanation of the method) . 12

3.1. The regional objective versus other objectives of the aided project . 12

3.2. Comparison: alternative location of the project . 13

3.3. Factors taken into account . 13

3.4. End result of the cost-benefit analysis: 'regional handicap ratio` versus 'aid intensity` . 14

3.5. Market-impact analysis: the 'regional top-up` . 15

4. Procedure . 15

4.1. Pre-notification . 15

4.2. Notification . 16

4.3. Appraisal . 16

5. Cost-benefit analysis forms and glossary of terms . 16

COST-BENEFIT ANALYSIS

1. REGIONAL AID VERSUS DISTORTION OF COMPETITION

1.1. Effects on the sector

When dealing with Member States' proposals to grant regional aid in the automotive sector, the motor vehicle framework establishes that the Commission has to assess the benefits for regional development against possible adverse effects on the sector, such as the creation of important overcapacity.

Moreover, in view of the sensitive nature of the motor vehicle sector and the high risk of unwarranted distortions of competition, it is necessary to ensure that the regional aid is in proportion to the regional problems it seeks to redress.

The Commission has established an aid ceiling for each of the regional areas covered under Article 92 (3) (a) or (c) of the Treaty. However, even when the ceiling for regional aid in the area where the project is to be developed is higher than the aid intensity proposed in favour of an automotive company, the level of regional aid exceeding the actual cost disadvantages, arising for that company in that assisted area, provides a competitive advantage to the aided company vis-à-vis the unaided competitors.

The risk of undue distortion of competition is particularly high in the automotive sector because the level of globalization and the structural overcapacity affecting most manufacturers leads to fierce price competition. This intense competition reduces the profit margins which in turn forces the industry to make permanent cost reductions. Consequently, any overcompensation of regional handicaps may have adverse effects on unaided competitors. The risk of undue distortion of competition is also high because Member States and regions are put into competition by multinational automotive companies for the location of large-scale investment projects. Hence, there is a tendency for disproportionate aid allocation to such projects. Such competitive bidding may involve not only regional aid but also other horizontal aid, ad hoc aid and general measures.

Consequently, by submitting all cases of regional aid to a strict analysis the Commission aims to limit regional aid to what is strictly necessary to influence the locational choice of economically viable projects in the automotive industry and thereby to avoid unjustifiable distortion of competition.

1.2. Balance: how to assess it

In order to assess a Member State's proposal for granting regional aid to a car manufacturer for a large and mobile investment project, the Commission wishes to calculate to what extent regional aid relates to the structural handicaps faced by an investor in the assisted area. For this calculation it has since 1990 opted for a method called 'cost-benefit analysis`. This method is based on the study 'The effect of different State aid measures on intra-Community competition` by the Motor Industry Research Unit published in 1990 (1).

Because distortion of competition is caused by companies in the market, the Commission places itself deliberately in the position of the private investor when calculating costs or benefits associated with a particular location. By comparing the investment and operating costs of the chosen location in the assisted area with the best alternative location, the Commission can identify those costs and benefits. The present value of the calculated net incremental cost of the regional site can then be compared with the present value of the proposed regional aid. The balance between those values expressed as percentages of the eligible investment is the subject of a sectoral impact study of the project concerned.

2. COST-BENEFIT ANALYSIS AND COMMISSION'S APPROACH

2.1. What is cost-benefit analysis?

Cost-benefit analysis is, in general, a procedure for evaluating the desirability of a project by weighing its benefits against its cost. Results may be expressed in different ways, including the internal rate of return, the net present value and the benefit-cost ratio. Behind a number of practical approaches based upon the principle of the rationale of a private investor acting under market conditions, cost-benefit analysis has found a wide acceptance amongst private companies and government bodies in the appraisal of major investment projects.

2.2. Commission's approach

The Commission's approach is to use a variant of the cost-benefit analysis model for estimating the net incremental cost resulting for an automative company from its decision to locate a mobile investment project in a particular regional assisted area instead of the company's best alternative location (2). This method has between 1991 and 1996 been used to justify regional aid for 17 investment projects.

In the first place, the mobility is ascertained. The automotive group in favour of which the aid is proposed must prove in a clear and convincing way that there is an economically viable alternative location site for its project. This is obviously the case for greenfield projects and expansion projects which do not involve a replacement of existing installations.

It is to be noted that if the company has no viable alternative, because of industrial constraints, to carrying out the project in another site, new or already existing, then the regional aid in support of the location choice is not justified because there is no necessity at all for that aid: the automotive group would carry out its project anyway in the only possible existing location. Non-mobile investment projects focus on one of the following objectives: modernization, rationalization or replacement.

However, on the occasion of a complete model renewal (with or without effects on the plant's capacity) that involves the dismantlement of complete older production lines and their replacement by new ones, the company can make a case for mobility. On that occasion, the company may be tempted to close the site and relocate production. Such radical refurbishment of an existing site will be called a transformation (3) and may justify regional aid. A transformation may increase or decrease the overall capacity of the plant. The alternative to transformation is normally expansion at another existing site or a greenfield project.

The existence of the 'viable alternative` defines the 'mobile` character of the project. The 'mobility` requirement is to be demonstrated by the company on the basis of the location studies carried out in order to examine different alternative locations and propose the most advantageous site from those locations. It is important to note that the most attractive location can be placed outside the Community. In any case, the Commission verifies the rationality of the alternative location, having a special regard to the markets targeted by the company with its investment.

In conclusion, in order to assess a regional aid proposal the Commission examines the actual geographical mobility of the notified project. No regional aid can be approved which would not be necessary because the project would not be mobile, in the sense that the company has no real choice of locating the project in any other place.

The location study performed by or for the investor will in principle provide all the necessary input for completing the cost-benefit forms. A copy of the original study should also be transmitted to the Commission. All headings for which differences in costs (4) exist between the two sites under consideration can in principle be retained for the Commission's analysis. The sole exceptions to be eliminated are those handicaps for which a specific aid will be granted under a different objective (e.g. training). Another difference may be the number of years taken for the cost-benefit analysis for which the Commission has chosen a uniform period of three and five years (See 3.3 below).

The cost-benefit analysis provides for a calculation of the net incremental cost associated with the selection of the plant in an assisted area versus the best alternative location. The proportion between the present value of this net incremental cost and the present value of the eligible investment is called the 'regional handicap ratio`.

2.3. Market-impact analysis

In order to establish the effect of regional aid on competitors, the Commission will first define the relevant product market affected by the project concerned at European level, taking into account the prevailing substitutability of demand and supply in the sector. If substitutability is strong between different market segments or niches, the Commission will add those segment or niches to arrive at the relevant market. As such, the Commission does not, for example, make a distinction between most segments of the passenger car market unless the vehicle is sufficiently distinct in its use and production mode (e.g. off-road vehicles).

As most vehicle producers manufacture their own engines, the Commission has considered that the relevant market for engine production by a vehicle manufacturer is the vehicle market for which the engines are built. However, as concerns component systems or modules which are now also covered by the framework, the Commission is of the view that there is a separate market for each of those component modules. In fact, a car manufacturer will only decide to (continue to) produce a module itself after verification of its cost efficiency against outsourcing that module.

In the event of a notification of a global project involving vehicle or engine manufacture as well as the manufacture of the corresponding component modules, the Commission will define the relevant market as the combination of the vehicle market and the markets for the different modules.

The effect of regional aid will be assessed in detail and classified according to three categories, namely low, medium or high impact for competitors in the relevant market. Such analysis will be closely related to the changes in capacity and market share generated by the project.

The structural overcapacity currently affecting the motor vehicle industry at Community level has led the Commission to adopt a stricter approach concerning State aid to projects that contribute to an aggravation of this problem, independently of its location in assisted or non-assisted areas. For that reason, the 'regional handicap ratio` can be modified by adding or subtracting some percentile points (the so-called 'regional top-up`).

The concept of overcapacity, its verification at group level, and the range of values established for the 'regional top-up` are explained in detail in section 3.4 below.

2.4. Technical expert report and confidentiality

Both the availability of a viable alternative location and the calculation of the extra costs and benefits are subject to an independent technical expert report.

Because of the sensitiveness of the results of the cost-benefit analysis to the data submitted by the beneficiary company itself, the Commission makes use of an external technical expert report to verify the data submitted by that company. The Commission contracts a consultancy company with expertise in the automotive sector, which is chosen through a call for tenders procedure, subject to the Commission's public procurement procedures.

Most of the information and technical data submitted by the beneficiary in the context of the cost-benefit analysis is communicated to the Commission under a strict requirement for confidentiality. The cost-benefit analysis makes use of detailed information on the operating and investment cost of the project and of other confidential information on the company's plans for sales, production and capacity, all of which may be subject to business secrets protected by law. The consultany company employed by the Commission is subject to contractual provisions against any possible disclosure, facing heavy fines and responsibilities for such an eventuality. The Commission can guarantee also to the beneficiary company that documents marked confidential will not be circulated.

3. HOW TO DO IT (AN EXPLANATION OF THE METHOD)

3.1. The regional objective versus other objectives of the aided project

Before starting the analysis, it is important to determine whether the project is only serving a regional objective or also any other objective eligible for aid under the guidelines of the motor vehicle framework. If the project is also aided under other objectives (e.g. environmental, R& D, training), it will be important to ascertain that eligible expenditure and cost-benefit analysis do not involve any of these items since they will be separately aided. The position is somewhat different for innovation when linked to investment. That expenditure can be aided from a regional and an innovation point of view.

3.2. Comparison: alternative location of the project

The identification of the comparator plant for the project, which is a key element of the analysis, is carefully examined by the Commission and can be - as any other information or technical data submitted by the company - challenged by the technical experts:

- in principle, the company is requested to supply a full copy of the location study of the project which will provide evidence of the alternative site(s) considered before opting for the selected plant,

- if a complete study was not made, the company (5) would have to provide sufficient circumstantial evidence to demonstrate that it has actively pursued an alternative location which would in the short run have been more cost efficient but was not pursued for specific reasons and the Commission's experts would then have to verify this evidence.

In the Commission's cost-benefit analysis, the comparator site or benchmark is in principle situated within the EEA or one of the Central and Eastern European countries (CEEC), if the purpose of the investment is the production of vehicles or car components destined, to a large extent, for the European markets (6). In those rare cases where a company is only comparing one European site with a site outside Europe from which it would import the vehicles, the cost-benefit analysis may have to be performed with a hypothetical alternative site. In cases where the company can demonstrate that more than half of the production is to be sold outside Europe, the comparator plant for the cost-benefit analysis can be situated outside Europe.

If the comparator site identified by the company is located in another assisted area of the Community covered by the exemptions provided for in Article 92 (3) of the EC Treaty or Article 61 (3) of the EEA Agreement, the possible difference between the respective aid ceilings does not constitute an advantage or a disadvantage for the cost-benefit analysis; that difference is regarded as neutral for the final result of the analysis.

3.3. Factors taken into account (7)

As explained above, all information and technical data submitted by the company are checked and validated by the Commission and its technical experts. General reference data (inflation rates, average wages in the sector in the different countries, etc.) are compared with available statistics at Community level (Eurostat, Commission - DG II, etc.).

The cost-benefit analysis examines differences in investment cost as well as possible operating costs over a period of three years for existing plants, or five years for greenfield projects, from the first year when production of the new vehicles/engines starts, both in the plant located in the assisted area and in the comparator plant.

It must be pointed out that the concept of 'greenfield` project refers to a completely 'new` site in an area which is also new to the manufacturer. It requires the development of basic infrastructures, the installation of logistics, the recruitment and intensive training of a new workforce and the development of a network of local suppliers, amongst other factors. In the event that those factors could be assured by another unit of the business group already located near the site, the project is regarded as an expansion of existing facilities, even when it is actually in a 'greenfield` location (8).

The period of three or five years has been set following the recommendation of the experts as the most appropriate period to recover from start-up costs, depending on the nature of the project: the expansion of transformation of an existing facility requires, as a rule, a shorter period before full production can be reached than greenfield plants where the learning process is slower.

The Commission experts the companies to demonstrate that the net operating disadvantages decline over time in order to demonstrate the rationality of the locational choice which is normally based on the long-term comparative advantages of the site chosen by the investor as opposed to possible alternative sites.

The cost-benefit analysis takes into account the following factors:

Investment cost differences

Differences in additional investment cost (9) arising for the automotive group between the two locations must be identified in detail. The analysis considers at least five categories of cost: land, building and infrastructure, machinery and equipment, tools and dies and vendor tooling. Other categories may be identified when they correspond to assets that will be depreciated over their lifetime. These cost differences must be explained by the automotive company to the Commission and all available supporting documentation (including technical lay-outs of the plant before and after investment) must be submitted.

Usually, the differences in investment between the two plants of comparison requires an on-site visit by the Commission's experts. The examination of these elements is also a crucial element to detect the capacity bottlenecks of the aided plant in cases where production capacity increases are at stake.

The analysis of investment handicaps shows whether or not the location in the assisted area results in an advantage or disadvantage for the company due to the fact that the investment that would have been required in the comparator plant is more or less expensive than the one actually installed in the assisted area.

Operating cost differences

Differences in operating costs corresponding to the first full three or five years of production also have to be examined in detail. In the supportive material a distinction should be made between normal or permanent cost differences and start-up cost differences for each category. Data are to be given in the currency of the Member State providing the aid (exchange rate assumptions to be provided) and in current prices for historic years or constant prices for future years. The factors usually taken into account are:

Labour costs: differences in the wage bill of production at optimal productivity which can be broken down in differences in wage rates, in working hours and manpower;

Components/materials: differences in the cost of components and supplies, taking into account local-suppliers policies, central-purchases policies, etc.;

Inventories: differences in the financing cost of stocks for incoming material and finished products that appear as a consequence of the location choice (i.e. differences in number of days in stock on the plant and on the road);

Transport: differences in cost arising for the automotive company because of the peripheral location of the regional plant (both as regards incoming materials and finished products) resulting from differences in distances and unit transport costs;

Other operating handicaps: differences in cost of, for example, various utilities and guarantees.

3.4. End result of the cost-benefit analysis: 'regional handicap ratio` versus 'aid intensity`

The cost-benefit analysis model obtains the net incremental cost between the two locations. The nominal value is to be discounted using the reference rate of the Member State concerned valid at the start of the project. When operating handicaps are expressed in constant prices, the nominal value of those handicaps will be discounted by the real interest rate, which is equal to the reference rate minus the inflation rate for the country in question.

The Commission also examines the correct application of the regional aid scheme in arriving at the eligible expenditure. The relevant 'aid intensity` for the Commission's decision on the aid project is the ratio between the discounted aid flow and the discounted flow of eligible investment using the reference rate. This aid intensity is then expressed in gross grant equivalent.

Division of the net incremental cost in present values by the present value of the eligible investment produces the 'regional handicap ratio`.

This 'regional handicap ratio` is compared with the 'aid intensity` expressed in gross grant equivalent resulting from the Member State's proposal. Comparing both ratios, the following initial propositions can be drawn up:

- if the aid intensity is well below the regional handicap ratio, it is assumed that the automotive company will not receive an unjustified amount of aid; the aid will serve to compensate to a certain extent the financial disadvantages of the geographical choice,

- if the aid intensity is substantially higher than the regional handicap ratio, it may be assumed, at this point of the analysis, that the automotive company may receive an unjustified amount of aid; the aid may serve to overcompensate the financial disadvantages of the geographical choice,

- if the aid intensity is close to the regional handicap ratio, the market-impact analysis will define whether the proposal is acceptable.

3.5. Market-impact analysis: the 'regional top-up`

Taking into account the present surplus capacity in the European automotive industry, the Commission's assessment of regional aid cases in the motor vehicle industry puts a special emphasis on the production capacity of the vehicle maker (10) receiving the aid 'before` and 'after` investment and the situation of the vehicle's market segment that will be affected as a consequence of the aided project.

Aid proposals in support of investments that potentially aggravate the overcapacity problem of the industry can be modulated by reducing the 'regional handicap ratio` by up to two points; this could imply that the Commission has to start proceedings under Article 93(2) of the Treaty even when the proposed aid does not overcompensate the regional handicap.

On the contrary, a project contributing to an overall improvement to the overcapacity situation affecting the industry can benefit from increases of up to four points (in assisted areas) to the regional handicap estimated by the cost-benefit analysis.

The 'regional top-up` range of values is the following:

>TABLE>

Note: the 'regional top-up` is expressed in percentile points that are added to (or subtracted from) the 'regional handicap ratio` estimated by the cost-benefit analysis.

A distinction between Article 92 (3) (a) and Article 92 (3) (c) areas is necessary in order to take into account the different situation of the regions and increase the incentive effect of regional aid for potential investors.

4. PROCEDURE

4.1. Pre-notification

Member States may wish to contact the Commission in advance of a notification to obtain advice to ensure that the subsequent notification is as complete as possible. This is particularly relevant when the aid nature of certain measures is uncertain, when an aid measure serves more than one objective, when it is doubtful whether a cost-benefit analysis is required or when a company has not carried out a location study.

4.2. Notification

The Member State should, with the help of the aided company, complete the standard notification form and cost-benefit analysis forms adding the necessary supporting material.

4.3. Appraisal

Upon registration of the notification, the Commission will inform the Member State as soon as possible and usually within 15 working days about any information (11) which may be lacking in order to make the notification complete for an assessment of all aspects of the case. At the same time, it will propose to the Member State a meeting in its offices or on the site of the investment to discuss the information already received and to be received.

On that occasion, the Member State and the Commission can be assisted by appropriate experts so that all technical and financial information can be discussed in detail. During the meeting, missing information for a full assessment of the case will be identified by the Commission and agreement reached by all parties on supportive material to be provided and on the prospective timetable for decision-making. Following that meeting (12), the Commission will confirm its final request for further information in writing.

Once the additional information which corresponds to the requests of the Commission is received, the decision will normally be adopted within 30 working days for notified aid under an approved aid scheme(s) or two months for notified ad hoc aid.

However, within this deadline the Commission will invite the Member State, which can if appropriate be assisted by experts, to review the cost-benefit analysis in a meeting in Brussels. Any errors and misinterpretations can then still be corrected before a final version is arrived at.

5. COST-BENEFIT ANALYSIS FORMS AND GLOSSARY OF TERMS

See Annex II.

(1) Published by the Office for Official Publications of the European Communities under the number ISBN 92-826-0381-4.

(2) Prior to the review of the framework, the alternative location always had to be the best possible location for the same project in a non-assisted area. If that option was not examined by the company, it was invited to select that location.

(3) This notion of transformation is different from restructuring, which is reserved for companies in difficulty or sites that would be closed if the investment project did not go ahead.

(4) Differences in corporate taxes are not considered as a cost element.

(5) Producers of component systems to be located in the vicinity of a vehicle plant would normally not have made such a study. The alternative site is thus the same as for the vehicle producer. A car assembler who has been in competition with other sites will on the other hand not have access to the location study performed by the car company.

(6) The study on the mobility of the investment and the cost-benefit analysis could be carried out on the basis of different comparison sites.

(7) This section would be better understood if read in parallel with the cost-benefit analysis sheets attached as an annex.

(8) Decision 96/666/EC, OJ L 308, 29. 11. 1996, p. 46.

(9) The investment cost may be larger than the eligible investment, which is defined by the regional aid scheme actually applied.

(10) In the case of component modules, the Commission will not take account of overcapacity considerations given that first-tier component suppliers are not considered to invest in new capacities unless they have firm purchase orders.

(11) Given the fact that every case has its own pecularities, it is normal to expect that the notification does not provide comprehensive information on all technical and financial aspects of a project. In cases where the Member State has consulted the Commission before notification, the need for additional information will of course be limited.

(12) If the company argues for considerable investment cost differences between two existing sites, it may also be necessary for the Commission's experts to visit the alternative site.

ANNEX II

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY

PART I - GENERAL INFORMATION

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NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART I - GENERAL INFORMATION Form 1 - Supporting Documentation

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(For Commission's use only)

State Aid No .

Supporting Documentation

All information provided in the forms must be referenced to supporting documents. Please list below the documents attached allocating a unique reference for use in completion of the relevant Form Set:

Document

Reference

Example: Project AUTO X Appraisal, December 1996

PA.96

I. General information

Group's and company's most recent financial accounts

Copy of the national legal basis under which aid may be granted

II.A. Mobile Regional Investment Project

Location Study

Full Feasibility Study

II.B.1. Rescue

Rescue Plan

II.B.2. Restructuring

Restructuring Plan

II.C. Research and Development

Research Plan and Budget

II.D. Innovation

Project appraisal

Form 1 of 3

Page 1 of 2

II.E. Environment Protection and Energy Savings

Project appraisal

II.F. Training

Training Programme

OTHER SUPPORTING DOCUMENTS

Form 1 of 3

Page 2 of 2

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NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE SECTOR PART I - GENERAL INFORMATION Form 2 - Project Overview

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Completion Date:. . . . . . /. . . . . . /. . . . . .

1 National Administration

1a Member State:

1b Authority in charge of the file:

Name

Address

Contact Person

Name:

Telephone:

Fax:

e-mail:

2 Recipient

2a Company name (1):

2b Ownership (2):

1. . . . %

3. . . . %

(Please indicate name, nationality and ownership share)

2. . . . %

4. Other . . . %

2c Department in charge of the project:

Name

Address

Contact Person

Name:

Telephone:

Fax:

e-mail:

2d Principal activity(Please tick one box only)

Motor vehicle manufacturer/assembler

Systems components manufacturer/assembler

(Please specify)

Engine manufacturer/assembler

2e Group financial results (3) (most recent)

Currency

Units: million billion(Please tick one box only)

Turnover

Net Profit

Last year: . . . / . . .

Year before: . . . / . . .

2f Recipient company financial results (3) (most recent)

Currency

Units: million billion(Please tick one box only)

Turnover

Net Profit

Last year: . . . / . . .

Year before: . . . / . . .

Form 2 of 3

Page 1 of 5

3 Project classification (according to aid objective) (4)

Mobile Regional Investment

Rescue & Restructuring

Research & Development

Innovation

Environment Protection/Energy Saving

Training

4 Project overview

4a Project objectives and scope

4b Brief description of the product(s), where relevant

4c Brief description of the relevant market segments(s), where relevant

4d If the project results in a transfer of activity from another area, please provide details

5 Project details

5a Location:

Region:

Assisted area:

Yes

No

County:

Town/Village:

Postcode:

5b Project timing (5):

month

year

starting:

No of months

ending:

Form 2 of 3

Page 2 of 5

5c Project cost (6):

Currency

Units: million billion

(Please tick one box only)

TOTAL PROJECT COST

Capital Cost(s)

Reference

Non Capital Cost(s)

Reference

Land

Operating Costs

Buildings

R& D

Plant & Machinery

Other (specify)

Equipment

Intangible

Other

5d Project financing

Reference

own resources

private capital contributions

external borrowing

private borrowing

public borrowing

national public body

Community assistance

TOTAL

6 Effects of the Project

Plant

With Project

Without Project

Reference

Group

With Project

Without Project

Reference

6a (*) on capacity (7)

6b on employment (8)

6c on production (9)

6d on market share

6d.1 domestic . . . % . . . % . . . % . . . %

6d.2 other EEA . . . % . . . % . . . % . . . %

6d.3 non EEA . . . % . . . % . . . % . . . %

(*) Please indicate the assumptions underpinning the definition of capacity (efficiency rates, . . .) and where production bottlenecks are located

Form 2 of 3

Page 3 of 5

7 Public Assistance

7a Please indicate the following information on envisaged public support: type(s) of aid scheme(s) and legal basis(es) under which the support would take place, and the public entity(ies) involved

Type (10)

Aid Scheme (11)

National Legal Basis (12)

Public Entity (13)

7a.1 1.

7a.2 2.

7a.3 3.

7a.4 4.

7a.5 5.

7b Please indicate by year the gross value, expressed in nominal terms, of each type of public support listed in 7a

Please provide us with the calendarization of the payments of the aids

Currency

Units: million billion (Please tick one box only)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Total

Reference

7b.1 1.

7b.2 2.

7b.3 3.

7b.4 4.

7b.5 5.

7b.6 Total

7b.7 Estimation of total public support in gge (gross grant equivalent) (14)

7b.8 Total State Aid

7b.9 Please indicate the discount (15) factor used to compute the State aid net present value (7b.10) . . . %

7b.10 State Aid Net Present Value (16)

If there are more than five types of aid or aid schemes, please use a copy of this page (Form 2 of 3, Page 4 of 5) and provide the same information

Form 2 of 3

Page 4 of 5

7c Please indicate if any of the envisaged public support does not represent State aid and explain briefly why

Envisaged support

Description

Reference

8 Other pending application(s) for public support

Please indicate other pending application(s), at company and/or group level, for public support in Europe and the authority(ies) involved (EIB, EBRD, R & D Funds . . .)

CurrencyUnits: million billion (Please tick one box only)

Public Entity

Date of Application

Month

Year

Type of Aid

Amount

Date of Outcome

Month

Year

Form 2 of 3

Page 5 of 5

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NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART I - GENERAL INFORMATION Form 3 - Market Information

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

1 Please indicate the number of models (17) supplied by the Group within the EEA

2 Please describe briefly the models supplied by the Group within the EEA in order of importance

(on the relevant market)

Description

Reference

2a Model 1

2b Model 2

2c Model 3

2d Model 4

Other

Form 3 of 3

Page 1 of 4

3 Please indicate market forecast expressed in millions/thousands of units under the following breakdown

3a NATIONAL MARKET (18)

Currency:

Units: million billion(Please tick one box only)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3a.1 Model 1

3a.2 Model 2

3a.3 Model 3

3a.4 Model 4

3a.5 Other

3a.6 Total

3b OTHER EEA MARKETS (19)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3b.1 Model 1

3b.2 Model 2

3b.3 Model 3

3b.4 Model 4

3b.5 Other

3b.6 Total

3c CEEC MARKETS (20)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3c.1 Model 1

3c.2 Model 2

3c.3 Model 3

3c.4 Model 4

3c.5 Other

3c.6 Total

Form 3 of 3

Page 2 of 4

3d TOTAL EUROPE (NATIONAL + OTHER EEA + CEEC)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3d.1 Model 1

3d.2 Model 2

3d.3 Model 3

3d.4 Model 4

3d.5 Other

3d.6 Total

3e REST OF THE WORLD

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3e.1 Model 1

3e.2 Model 2

3e.3 Model 3

3e.4 Model 4

3e.5 Other

3e.6 Total

3f GRAND TOTAL (3d + 3e)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3f.1 3d.6 + 3e.6

4 Please indicate overall company's sales (all models) in millions/thousands of units under the following breakdown. Sales in national market and other EEA markets must include imports

thousand million(Please tick one box only)

Markets

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

4a.1 National

4a.2 Other EEA

4a.3 CEEC

4a.4 Rest of the World

4a.5 Total

Form 3 of 3

Page 3 of 4

5 Please indicate forecast group sales volumes (including imports) expressed in millions/thousands of units following the breakdown below

Markets

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

5a.1 National

5a.2 Other EEA

5a.3 CEEC

5a.4 Rest of the World

5a.5 Total

Form 3 of 3

Page 4 of 4

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Part I - General Information

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Footnotes

(1) Company name - Name of the national company carrying out manufacturing/ assembling activities in the Member State submitting the application (Ford UK, Fiat France, etc.).

(2) Ownership - Group or groups to which the company belongs.

(3) Financial results - Financial results of the Group's/Company's financial year (Example 95/96 or 1996).

(4) Project classification - A project may be classified according to the aid objectives under which public support is being sought by the company.

(5) Project timing - Start date (month and year): when the first investment cash flow takes place; end date (month and year): when the last investment cash flow takes place.

(6) Project cost - Nominal value of the investment costs and expenses budgeted for the completion of the project over the relevant period.

(7) Capacity - Maximum hourly capacity (line speed) taking account of bottlenecks multiplied by the number of hours per year the plant 'normally' operates (is expected to operate), including mothballed capacity.

(8) Employment - The number of full time and full time equivalent employees.

(9) Production - The total number of units produced.

(10) Types of aid - Grant, interest subsidy, tax credit, loan, loan guaranty, equity participation, reduction in social security contributions.

(11) Aid schemes - Approved aid schemes: Regional Development, Research and Development, Training, Environmental Protection/Energy Saving, Ad hoc.

(12) National legal basis - Law, regulation or other legal form describing the conditions under which public support may be granted.

(13) Public entity - The national, regional, local authority providing public support.

(14) GGE (Gross grant equivalent) - please refer to the relevant document communicated/published by the Commission.

(15) Discount factor or reference rate; please refer to the relevant document communicated/published by the Commission.

(16) State aid net present value - State aid cash flows discounted to the base year by using the official discount rate over the appropriate investment period.

(17) Model - Product type including different versions (Example for cars: Ford Mondeo, Renault Laguna, etc.).

(18) National market - Market of the Member State notifying the public support.

(19) EEA markets - EEA: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, United Kingdom, Iceland, Liechtenstein, Norway.

(20) CEEC - (Central and East European countries): Bulgarien, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia.

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY

PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA

>TABLE>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 1 - Cost-Benefit Analysis Summary

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

1 Currency:

Units: million billion(Please tick one box only)

Description

Location A (1)

NPV (2)

Location B (1)

NPV (2)

Net cost-benefit

(A-B)

Reference

A

B

2

Total Operating Costs

Form 4

Form 5

2a Labour

Form 4

Form 5

2b Components/Materials

Form 4

Form 5

2c Rent

Form 4

Form 5

2d Inventory Carrying Costs

Form 4

Form 5

2e Energy/Water

Form 4

Form 5

2f Telecommunications

Form 4

Form 5

2g Inward Transport

Form 4

Form 5

2h Outward Transport

Form 4

Form 5

2i Training

Form 4

Form 5

2j Other

Form 4

Form 5

3 Total Investment Costs

3a Land Purchase

Form 4

Form 5

3b Building/Construction

Form 4

Form 5

3c Machinery/Equipment

Form 4

Form 5

3d Tools & Dies

Form 4

Form 5

3e Supplier Tooling

Form 4

Form 5

3f Other

Form 4

Form 5

4 Other

Form 4

Form 5

5 Total Costs

6 Net incremental costs for implementing (3) the project in location A

7 Eligible investment (4)

8 Handicap Intensity (5) . . . %

Form 1 of 6

Page 1 of 1

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE SECTOR PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 2 - Cost-Benefit Analysis Assumptions - Location A

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

Description

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

1 Discount Rate % p.a. (6) . . . %

2 Inflation Rate % p.a. (7) . . . %

2a Real adjustment rate . . . %

3 Exchange Rates (8) . . . %

4 Budgeted Output/Sales (units)

4a Model 1

4b Model 2

4c Model 3

4d Model 4

4e Other

5 Ex-Factory Unit Price

Currency:

Units:

5a Model 1

5b Model 2

5c Model 3

5d Model 4

5e Other (9)

6 Production Capacity (10) Utilization %

6a Group Capacity Utilization (11) . . . % . . . % . . . % . . . %

6b % 'Mothballed' Group Capacity (12) . . . % . . . % . . . % . . . %

6c Company Capacity Utilization . . . % . . . % . . . % . . . %

6d % 'Mothballed' Comp. Capacity (13) . . . % . . . % . . . % . . . %

Form 2 of 6

Page 1 of 3

Form 2 of 6

Page 2 of 3

Description

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

7 Total Labour Force

(No of Employees Required)

7a Production (Sub-total)

7a.1 Management

7a.2 Other Salaried

7a.3 Direct Hourly

7a.4 Indirect Hourly

7a.5 Trainees

7b Other (Sub-total)

7b.1 Salaried

7b.2 Hourly Paid (No of hours)

8 Annual Average Wage (14)

Currency: Units:

8a Production

8a.1 Management

8a.2 Other Salaried

8a.3 Direct Hourly

8a.4 Indirect Hourly

8a.5 Trainees

8b Other Salaried

9 Average Standard Hourly Wage Rate (15)

Currency: Units:

9a Production

9b Other

Currency: Units:

10 Inventory (float)

10a Finished Products

10a.1 Thousand Units

10a.2 Value

10b Semi-finished Products

10b.1 Thousand Units

10b.2 Value

10c Components/Materials

10c.2 Value

10d Total Inventory Value

10e Rate (%) for Inventory Carrying

Costs Computation . . . % . . . % . . . % . . . %

Currency:

11 Energy Consumption

11a Electricity

11a.1 Units:

11a.2 Unit Cost: /

11b Fuel

11b.1 Units:

11b.2 Unit Cost: /

11c Water

11c.1 Units:

11c.2 Unit Cost: /

12 Telecommunications

12a.1 Units:

12a.2 Unit Cost: /

Form 2 of 6

Page 3 of 3

13 Please indicate the Group's plants and their production capacities (10), in thousands of units before and after the investment project

Plant Name

Country

Production capacity

Before project

After project

Difference

Reference

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19 TOTAL

14 Please indicate if production capacity would be shifted from one plant to another following the project's implementation or within the time scope of the project

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE SECTOR PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 3 - Cost-Benefit Analysis Assumptions - Location B

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

Description

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

1 Discount Rate % p.a. (6) . . . %

2 Inflation Rate % p.a. (7) . . . %

2a Real adjustment rate . . . %

3 Exchange Rates (8) . . . %

4 Budgeted Output/Sales (units)

4a Model 1

4b Model 2

4c Model 3

4d Model 4

4e Other

5 Ex-Factory Unit Price

Currency:

Units:

5a Model 1

5b Model 2

5c Model 3

5d Model 4

5e Other (9)

6 Production Capacity (10) Utilization %

6a Group Capacity Utilization (11) . . . % . . . % . . . % . . . %

6b % 'Mothballed' Group Capacity (12) . . . % . . . % . . . % . . . %

6c Company Capacity Utilization . . . % . . . % . . . % . . . %

6d % 'Mothballed' Comp. Capacity (13) . . . % . . . % . . . % . . . %

Form 3 of 6

Page 1 of 2

Form 3 of 6

Page 2 of 2

Description

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

7 Total Labour Force

(No of Employees Required)

7a Production (Sub-total)

7a.1 Management

7a.2 Other Salaried

7a.3 Direct Hourly

7a.4 Indirect Hourly

7a.5 Trainees

7b Other (Sub-total)

7b.1 Salaried

7b.2 Hourly Paid (No of hours)

8 Annual Average Wage (14)

Currency: Units:

8a Production

8a.1 Management

8a.2 Other Salaried

8a.3 Direct Hourly

8a.4 Indirect Hourly

8a.5 Trainees

8b Other Salaried

9 Average Standard Hourly Wage Rate (15)

Currency: Units:

9a Production

9b Other

Currency: Units:

10 Inventory (float)

10a Finished Products

10a.1 Thousand Units

10a.2 Value

10b Semi-finished Products

10b.1 Thousand Units

10b.2 Value

10c Components/Materials

10c.2 Value

10d Total Inventory Value

10e Rate (%) for Inventory Carrying

Costs Computation . . . % . . . % . . . % . . . %

Currency:

11 Energy Consumption

11a Electricity

11a.1 Units:

11a.2 Unit Cost: /

11b Fuel

11b.1 Units:

11b.2 Unit Cost: /

11c Water

11c.1 Units:

11c.2 Unit Cost: /

12 Telecommunications

12a.1 Units:

12a.2 Unit Cost: /

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 4 - Sales and Cost Breakdown by Year - Location A

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

Currency:

Units: million billion(Please tick one box only)

Description

NPV (2)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

1 Total Plant Sales

1a Model 1

1b Model 2

1c Model 3

1d Model 4

1e Other

2 Total Operating Costs

2a Total Labour

2a.1 Labour Production

2a.1.1 Management

2a.1.2 Other Salaried

2a.1.3 Direct Hourly

2a.1.4 Trainees

2a.2 Labour Other

2a.2.1 Salaried

2a.2.2 Direct Hourly

2b Total Components/Materials (16)

2b.1 Production

2b.1.1 Internally Sourced

2b.1.2 Externally Sourced

2b.1.2.a local supply

2b.1.2.b non-local supply

2b.2 Other

2c Rent

2d Inventory carrying costs

2e Energy/Water

2f Telecommunications

2g Inward Transport

Semi-finished Products

Components/Materials

2h Outward Transport

Finished Products

Semi-finished Products

2i Training

2j Other

Form 4 of 6

Page 1 of 2

Currency:

Units: million billion(Please tick one box only)

Description

NPV (2)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3 Total Investment Costs

3a Land Purchase

3b Building/Construction

3c Machinery/Equipment

3d Tools & Dies

3e Supplier Tooling

4 Total Other Costs

4a

4b

4c

5 Total Costs

Form 4 of 6

Page 2 of 2

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 5 - Sales and Cost Breakdown by Year - Location B

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

Currency:

Units: million billion(Please tick one box only)

Description

NPV (2)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

1 Total Plant Sales

1a Model 1

1b Model 2

1c Model 3

1d Model 4

1e Other

2 Total Operating Costs

2a Total Labour

2a.1 Labour Production

2a.1.1 Management

2a.1.2 Other Salaried

2a.1.3 Direct Hourly

2a.1.4 Trainees

2a.2 Labour Other

2a.2.1 Salaried

2a.2.2 Direct Hourly

2b Total Components/Materials (16)

2b.1 Production

2b.1.1 Internally Sourced

2b.1.2 Externally Sourced

2b.1.2.a local supply

2b.1.2.b non-local supply

2b.2 Other

2c Rent

2d Inventory carrying costs

2e Energy/Water

2f Telecommunications

2g Inward Transport

Semi-finished Products

Components/Materials

2h Outward Transport

Finished Products

Semi-finished Products

2i Training

2j Other

Form 5 of 6

Page 1 of 2

Currency:

Units: million billion(Please tick one box only)

Description

NPV (2)

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

3 Total Investment Costs

3a Land Purchase

3b Building/Construction

3c Machinery/Equipment

3d Tools & Dies

3e Supplier Tooling

4 Total Other Costs

4a

4b

4c

5 Total Costs

Form 5 of 6

Page 2 of 2

>END OF GRAPHIC>

NOTIFICATION TO THE COMMISSION OF A PUBLICLY ASSISTED PROJECT IN THE AUTOMOTIVE INDUSTRY PART II.A - MOBILE INVESTMENT PROJECT IN AN ASSISTED AREA Form 6 - Public Support

>START OF GRAPHIC>

(For Commission's use only)

State Aid No .

Member State:

.

Company:

.

Completion Date:

. . . . . . /. . . . . . /. . . . . .

Sector:

Motor Vehicles

Engines

Components Systems

(Please specify)

.

1 Please indicate the amounts of public support expressed in nominal terms

Currency:

Units: million billion(Please tick one box only)

Support Type

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

1a Grants

1b Equity Participation

1c Loans

1d Loan Guaranties

1e Tax Relief/Credit

1f Reduction in Social Security Contributions

1g Other

1h Total Public Support

2 Please indicate your estimate of public support in gross grant equivalent terms (17)

Gross grant equivalent

Year 1:

Year 2:

Year 3:

Year 4:

Year 5:

Reference

2a Grants

2b Equity Participation

2c Loans

2d Loan Guaranties

2e Tax Relief/Credit

2f Reduction in Social Security Contributions

2g Other

2h Total

3 Please indicate the net present value of the State aid expressed in gross grant equivalent terms (2h) (18)

State Aid Net Present Value

Form 6 of 6

Page 1 of 1

>END OF GRAPHIC>

Part II.A - Mobile Investment Project in an Assisted Area

>START OF GRAPHIC>

Footnotes

(1) Location A - Assisted area where the project would be supported with public funds.

Location B or comparator plant, commercially viable alternative location.

(2) NPV (Net Present Value) - Value of cash flows discounted to the base year by using the official discount rate over the appropriate investment period.

(3) Net incremental costs for implementing the project in location A - The additional cost for establishing the project in Location A (the disadvantaged area) as opposed to Location B (commercially viable alternative).

(4) Eligible investment - The share of the investment which is considered to be eligible for State aid by the national administration according to the aid scheme.

(5) Handicap intensity - Net incremental costs (6) divided by the NPV of investment costs in Location A (Operating Costs + Investment Costs) expressed as a percentage.

(6) Discount rate or reference rate; please refer to the relevant document communicated/published by the Commission.

(7) Inflation rate - Inflation rate forecasts, referring to the supporting documents, and ensuring that the source (official or otherwise) is specified.

(8) Exchange rate - Exchange rate forecasts, referring to the supporting documents, and ensuring that the source (official or otherwise) is specified.

(9) Ex-factory unit price, Other - Weighted ex-factory unit price for the group of products included in the item 'Other'.

(10) Production capacity - Maximum hourly capacity (line speed) taking account of bottlenecks multiplied by the number of hours per year the plant 'normally' operates (is expected to operate), including 'mothballed' capacity.

(11) % Group production capacity utilization - The percentage of the group's total capacity to be utilized, including that of the plant(s) for which public support is sought.

(12) % 'Mothballed group capacity' - (Mothballed group capacity)/(Total group capacity) expressed as a percentage.

(13) % 'Mothballed company capacity' - (Mothballed company capacity)/(Total company capacity) expressed as a percentage.

(14) Annual average wage - Salaries plus social security contributions.

(15) Average standard hourly wage rate - Average hourly wage rate per employee, including social security contributions.

(16) Operating costs - components/materials - Ex-factory cost of components (components systems) purchased. Transport cost component will be indicated under a separate item.

(17) GGE (Gross grant equivalent) - please refer to the relevant document communicated/published by the Commission.

(18) State aid net present value - State aid cash flows discounted to the base year by using the official discount rate over the appropriate investment period (3 or 5 years).

>END OF GRAPHIC>