2001/780/EC: Commission Decision of 6 June 2001 on State aid which Italy is planning to implement for Iveco SpA (Text with EEA relevance) (notified under document number C(2001) 1545)
Date: 2001-06-06
Institutions: European Commission
Subjects: Italy, State aid, aid to industry, control of State aid, motor vehicle industry

L 292/58

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Official Journal of the European Communities

9.11.2001

COMMISSION DECISION

of 6 June 2001

on State aid which Italy is planning to implement for Iveco SpA

(notified under document number C(2001) 1545)

(Only the Italian text is authentic)

(Text with EEA relevance)

(2001/780/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

dated 24 October 2000 and registered as received on 30
October 2000.

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

(4)

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1),

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to
submit their comments on the aid. No comments were
received.

Whereas:

II. DETAILED DESCRIPTION OF THE AID

I. PROCEDURE

(1)

(2)

(3)

By letter dated 2 November 1999, registered as received
on 10 November 1999, Italy notified a plan to grant
R & D aid to Iveco for a project carried out between
1994 and 1999. Following a preliminary analysis, the
Commission registered the case as notified aid N 670/
1999. On 7 January 2000 it asked for further details.
After Italy requested an extension of the deadline for its
reply, a meeting was held on 29 February 2000. After a
further extension of the deadline, Italy sent additional
information by letters dated 31 March, 8 May and 18
May 2000.

the Commission
By letter dated 4 August 2000,
informed Italy that it had decided to initiate the proce-
dure in Article 88(2) of the EC Treaty in respect of the
proposed aid measures and invited it to submit any
comments it might have and to provide the information
required to assess the compatibility of the aid with the
common market.

After requesting an extension of the deadline for the
reply by letter dated 16 August 2000, Italy sent the
Commission the information required by the latter in
order to complete its examination of the case by letter

(5)

(6)

(7)

The planned aid would be granted to Iveco SpA, a
subsidiary of the Fiat group. Iveco designs, manufactures
and sells mainly light commercial vehicles, lorries, buses
and diesel engines under the trade marks Iveco, Astra,
Iveco-Ford Truck, Iveco Magirus and Iveco Pegaso. In
1999 Iveco employed 36 000 workers,
and sold
149 900 vehicles and 405 000 engines. It achieved a
turnover of EUR 7,4 billion and an operating income of
EUR 311 million.

The aid is for research and development activities under
an approved scheme provided for by Law No 46/1982,
which aims to provide an incentive for the development
of production processes and products presenting a
significant
innovation. The Law also
provides for a retroactive period of 24 months from the
date on which the application was made. The project
was carried out in the period 1994 to 1999 and Iveco
applied for aid in 1996.

technological

The notified project concerns the renewal and expansion
of Iveco's range of light vehicles in the 2,8 t to 6,5 t
range, with a loading capacity of between 7 m3 and
17 m3. The goal was to develop a completely new
‘vehicle system’ for the Iveco S 2000 range that would
introduce substantial innovations into the product and
the production process.

(1) OJ C 27, 27.1.2001, p. 25.

(2) See footnote 1.

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(8)

The investments amounted to ITL 214,485 billion (approximately EUR 110,8 million), of which
ITL 139,646 billion was regarded as eligible by the Italian authorities. The investment schedule was
as follows:

1994

1995

1996

1997

1998

1999

Total

(in billion ITL)

Planned

Eligible

0,597

8,793

21,169

71,687

75,329

36,910

214,485

7,602

13,232

46,483

51,232

20,736

139,646

The project was regarded as ‘highly innovative’ by the
Italian authorities. As a result, 55 % of
the eligible
investment qualified for aid under Law No 46/1982.
Total R & D aid worth ITL 31,249 billion (EUR 16,14
million) in nominal terms was earmarked.

application to eligible investments and that
is
common practice among Italian firms applying for
R & D aid to exercise that option. Iveco was aware of
Law No 46/1982 in 1994 and was certain to qualify for
the benefits it provided for, given the nature and objec-
tives of its R & D activities.

it

(9)

(10)

The proposed aid includes a grant of ITL 15,926 billion
(EUR 8,23 million) and a reduced-interest
loan of
ITL 38,402 billion (EUR 19,83 million). The interest
rate on the loan amounts to 15 % of the industrial
reference rate during the pre-amortisation period,
to
36 % of the industrial reference rate during the amortisa-
tion period if the investment takes place in an assisted
area and to 60 % of the industrial reference rate during
the amortisation period if the investment does not take
place in an assisted area. The nominal aid resulting from
the loan is ITL 15,323 million (EUR 7,91 million).

(11) No other aid is planned for the project.

the aid.

(12) When the Commission decided to initiate the procedure
on 19 July 2000, it expressed doubts as to the compati-
bility of
In particular, doubts were raised
regarding the necessity for the aid, its incentive effect,
the dissemination of the results of the project, the inno-
vative nature of the research, the definition of the invest-
ments as R & D activities and the proportion of the
investments devoted to industrial research and pre-
competitive development.

III. COMMENTS FROM THE ITALIAN AUTHORITIES

(13)

The Italian authorities submitted their comments on the
initiation of procedure by letter dated 30 October 2000.

(14)

The comments relate first to the need for the aid and to
the fact that the project was started before the applica-
tion for aid under the approved scheme provided for by
Law No 46/1982 was made. The Italian authorities
retroactive
pointed out

the Law provides

that

for

(15)

(16)

(17)

Second, the Italian authorities pointed out that Iveco
launched a very ambitious project at a critical moment
for the motor vehicle industry, with a significant risk of
failure. In their opinion, the proposed aid was crucial to
the decision to design a completely new product rather
than upgrade and improve existing ones. The fact that
R & D expenditure did not increase as a percentage of
turnover in the period 1994 to 1998 was said to be due
to the unexpected increase in turnover, and did not
reflect the scale of the investment programme.

the Italian authorities stated that

Third,
the project
included industrial research and pre-competitive devel-
opment activities in line with the criteria specified in
Annex I to the Community framework for State aid for
research and development (3). They provided a break-
down of the activities classified as industrial research and
pre-competitive development for each subproject and a
description of the main features of the subprojects.

Fourth, as regards the dissemination of the results of the
project, Italy supplied information on the subprojects
carried out with in partnership with component
suppliers, both Italian and international. According to
the Italian authorities, dissemination of the results is
guaranteed by the fact
Iveco's partners in the
that
project can use the know-how acquired to supply any
other client worldwide with better products.

(18)

Last, Italy provided a recalculation of the aid contained
in the interest-rate subsidy on the loan, using the
Commission reference rate of 5,61 % to calculate the
present value of the aid.

(3) OJ C 45, 17.2.1996, p. 5.

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IV. ASSESSMENT OF THE AID

(19)

The measure constitutes State aid within the meaning of
Article 87(1) of the EC Treaty as it would be financed by
the State or through State resources; moreover, given
that it represents a significant proportion of the project
competition within the
funding,
Community by giving an advantage to Iveco over other
companies not receiving aid. Finally,
for
motor vehicles
is characterised by extensive trade
between Member States.

the market

it may

distort

(20) Article 87(2) of the EC Treaty lists certain types of aid
that are compatible with the Treaty.
In view of the
nature and purpose of the aid and the geographical
location of the firm, subparagraphs (a), (b) and (c) are
not applicable to the plan in question. Article 87(3) of
the Treaty specifies other forms of aid which may be
compatible with the common market. As the region of
Turin is not experiencing serious underemployment or
an abnormally low standard of living, exemption under
Article 87(3)(a) is not possible. Moreover, the project
does not promote culture and heritage conservation, and
thus the aid cannot be exempted under Article 87(3)(d).
As the project does not remedy a serious disturbance in
the Italian economy, the aid does not qualify for exemp-
tion under Article 87(3)(b) either. As regards the exemp-
tion relating to an important project of common Euro-
pean interest, the Commission's standard practice (4) has
made
any benefit deriving from Article 87(3)(b)
dependent on all four of the following criteria being
met:

— the aid must promote a project,

‘promote’ being
taken to mean action which contributes to imple-
mentation of the project,

— it must be a specific, precise and clearly defined

project,

— the project must be important both quantitatively

and qualitatively, especially qualitatively,

— the project must be ‘of common European interest’
and, as such, be of benefit to the whole of the
Community.

(21) As regards the exemption under Article 87(3)(c), Italy
has not notified the project as a regional aid measure in
accordance with the framework for State aid to the
motor vehicle sector (5) and has never argued that the
conditions set out in that framework with respect to
investment aid had been met. The aid may,
regional
however, qualify for exemption under Article 87(3)(c) as
aid to facilitate the development of certain economic
activities.

(22)

(23)

The aid in question is intended for an R & D project
carried out by a firm which manufactures motor
vehicles. The firm is part of the motor vehicle industry
within the meaning of the Community framework for
State aid to the motor vehicle industry (6) (the ‘motor
vehicle framework’). According to that framework, aid
for research and development is to be assessed under the
Community framework for State aid for research and
development (7) (the ‘R & D framework’).

Both the total cost of the project and the amount of aid
exceed the notification thresholds laid down in the
motor vehicle framework (paragraph 2.2(a)) and in the
R & D framework (paragraph 4.7) for an individual
project under authorised aid schemes. Thus, in notifying
the plan to grant aid to Iveco, the Italian authorities have
satisfied the requirement
the EC
Treaty.

in Article 88(3) of

(24)

To determine whether the proposed aid measures are
compatible with the common market under the exemp-
tion provided for in Article 87(3)(c) of the Treaty, the
Commission must therefore ascertain whether the condi-
tions specified in the R & D framework have been
complied with.

(25) When it assesses the compatibility of R & D aid, the
Commission pays particular attention to the type of
research carried out, the aid recipients, the accessibility
of the results, the planned intensity and the incentive
effect of the aid.

In this case, the project is not qualitatively important
and is not of common European interest. It is not there-
fore eligible for exemption under Article 87(3)(b).

(4) See,

in particular, Commission Decision 96/369/EC of 13 March
1996 concerning fiscal aid given to German airlines in the form of
a depreciation facility (OJ L 146, 20.6.1996, p. 42); see also para-
graphs 3.3 and 3.4 of the Community framework for State aid for
research and development.

(26)

The R & D framework takes a positive view of aid to
research and development. However,
the
R & D activity is to the market, the more significant may
be the distortive effect of the State aid. In this context, a
distinction must be made between fundamental research,
research and pre-competitive development
industrial
activity (see paragraph 2.2 of the R & D framework).

the closer

(5) OJ C 279, 15.9.1997, p. 1.
(6) OJ C 279, 15.9.1997.
(7) OJ C 45, 17.2.1996.

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Pursuant to paragraph 6.2 of the R & D framework, aid
must induce firms to pursue research which they would
not otherwise have pursued or could not have pursued
within the same period. R & D aid should therefore
serve as an incentive for firms to undertake R & D
activities in addition to their normal day-to-day opera-
tions. Member States are therefore required, when noti-
fying R & D aid, to demonstrate that the aid is necessary
as an incentive and is on no account operating aid.
Where this incentive effect is not evident, the Commis-
sion may consider such aid less favourably than it
usually does.

The Commission attaches particular importance to the
incentive effect of R & D aid in the case of individual,
close-to-the-market research projects to be undertaken
by large firms and in all cases in which a significant
proportion of the R & D expenditure has already been
made prior to the aid application.

(32)

(33)

(27)

(28)

(29)

The Commission notes that Iveco has the characteristics
of a large firm. According to the firm's plans, production
resulting from the research would start at the end of
1999, some three months before the marketing of each
model. The new paint shop was first used experimen-
tally to paint vehicles in the old range in 1998 and then
came fully on stream when the first vehicles in the new
range were produced. Iveco's suppliers, which produced
components for which Iveco carried out the research,
started production between November 1998 and April
1999. Given the nature of the project and the subse-
quent start of production and marketing for the vehicles
resulting from the research project,
the Commission
concludes that the research is close to the market and
thus attaches particular importance to the incentive
criterion with which the R & D aid must comply in this
case.

The main chassis development was the extension of the
gross vehicle weight range to 2,8 to 6,5 tonnes. The
choice of an extended size range can be explained by the
necessity to compete with other products that offer
similar weight ranges. The weight extension has been
achieved through the use of a ladder chassis instead of
the unitary steel body (monocoque) construction. The
ladder chassis is commonly used for lorries, and its
adaptation to a light van does not involve significant
R & D efforts.

The new technical solutions adopted for suspensions,
driveline, bodywork and brakes match the new extended
weight range of the van. The new independent front
suspension, control unit for the rear suspension, pneu-
matic rear suspension, gearbox, braking system and elec-
tronic management control unit do not contain signifi-
cant innovations in relation to existing products. The
parts have often been developed in partnership with
firms that supply Iveco with components for the new
is
light van range.
common practice for suppliers to design and develop
systems for manufacturers. Although such collaboration
their
has led to improvements on previous design,
R & D content
for the
development of a new model.

In the motor vehicle industry it

is no greater than is usual

(34) According to Italy's comments when the procedure was
initiated, the light van is powered by a common rail fuel
injection system (CRFS). Although the new engine
constitutes an improvement on previous models,
it
cannot be regarded as a significant innovation. The Fiat
group was the first motor vehicle manufacturer to intro-
duce CRFS in 1997, soon followed by other manufac-
turers. CRFS is still state-of-the-art and is used by virtu-
ally every diesel engine manufacturer.

(30)

The project is divided into subprojects that relate to
innovations in the vehicle and production systems. The
vehicle system subproject concerns the chassis, front and
back suspension, transmission and axle, cab and body,
brakes and engines. The production system subproject
concerns a new paint
shop. The Commission has
analysed the subprojects with the technical assistance of
an independent automotive expert.

(35)

The new paint shop is an improvement on the previous
one, leading to reduced consumption of water, energy
and chemical products. However, this does not prove
that significant
innovations have taken place. Paint
shops have to be renewed on a regular basis in order to
be able to meet stricter requirements with regard to the
environment standards and the quality of the finished
product. Furthermore, from the information submitted
by Italy it appears that the new paint shop utilises a
water-based technique instead of the more innovative
powder-based processes.

(31) When initiating

the Commission
the procedure,
expressed doubts concerning the innovative character of
the research and whether the investments constituted
R & D activities. However, it has not received any addi-
tional information proving that the investment in ques-
tion constitutes research within the meaning of
the
R & D framework.

(36) As regards the nature of

the subprojects described
above, the Commission, with the aid of its independent
expert, analysed the incentive effect of the planned aid. It
concluded that the proposed aid has no incentive effect.

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(37)

(38)

(39)

(40)

the project

First, Italy's claim that the R & D activities in the project
are in addition to day-to-day operations is not substan-
tiated. The outcome of
is a new light
commercial vehicle that replaces an old model dating
back to the 1970s. The Commission, in line with the
view of the independent expert, therefore concluded that
it was urgent for Iveco to replace the old model. The
company itself has presented the new light van to the
public as a response to a change in demand that the old
model was not able to satisfy (8). Moreover, the invest-
ment in the design, development and marketing of the
new Iveco van is no higher than the investments made
by competitors to bring out similar products.

Furthermore, the subprojects described above are part of
the usual procedures for designing and developing new
models. In the motor vehicle industry, such procedures
are carried out periodically as part of the normal activi-
ties of the company involved and must therefore be
considered normal day-to-day operations. Similarly,
partnerships with component suppliers are common
practice in the automotive industry and are also to be
considered normal day-to-day operations.

Second, the Commission rejects Italy's claim that the aid
addressed an unusual risk in the relevant market because
the project coincided with a particularly difficult period
for Iveco and the industry. The expert noted that the
commercial vehicle market
is an extremely cyclical
market with regular ups and downs and that car manu-
facturers cannot afford to postpone or cancel
invest-
ments because of a low point in the cycle. The aid
cannot therefore be regarded as necessary to address a
market failure.

Third, the Commission has looked at quantifiable factors
such as R & D spending, R & D staff and R & D
spending as a proportion of turnover. Average annual
R & D expenditure increased in nominal terms from
EUR 121 million in 1990 to 1993 to EUR 136 million
in the period 1994 to 1998 (9). The number of people
assigned to R & D rose from 907 on average in 1990 to
1993 to 945 in the period 1994 to 1998. However, in
every single year during the period 1994 to 1998, the
number of R & D staff was always lower than in 1990
(1 091).

(8) See,

for

example,

the

commercial

information

at

http://www.madeinfiat.com/feb00/briefa.htm.

(9) 1998 is the last year for which figures were provided by the Italian

authorities.

(41)

The change in R & D expenditure and staff numbers
seems to be related to Iveco's general performance.
Decreases in these indicators in the period 1991 to
1993 coincided with a period of decreasing turnover
and net losses for Iveco, implying a need to cut costs.
An improved financial situation, in terms of revenue and
profitability,
coincided with
increased R & D commitments.

from 1994 onwards

(42) A more precise indicator of the company's position is R
& D expenditure as a proportion of total turnover. This
indicator fell from an average of 4,81 % in 1990 to
1993 to an average of 4,16 % in 1994 to 1998. Further-
more, Iveco's R & D expenditure as a proportion of total
turnover is in line with that of comparable motor
vehicle manufacturers.

(43)

In the Commission's view, the quantifiable factors do
not indicate that the proposed aid served as an incentive
for Iveco to carry out R & D activities which it would
not have pursued otherwise.

(44)

(45)

(46)

it doubts that

Fourth, although the Commission notes that there was
some cross-border cooperation on the project with
the cooperation
component suppliers,
involved additional costs that Iveco would not have
incurred had it chosen national instead of international
partners. Cross-border cooperation is certainly normal
practice in the global market for motor vehicle compo-
nents.

The Commission concludes that the R & D activities
carried out by Iveco are normal for a motor vehicle
manufacturer and thus considers that Italy has failed to
demonstrate the incentive effect of the notified R & D
project. The planned aid is therefore not compatible
with the common market.

In addition to the points set out above, the Commission
notes that the fact that the project was started before the
aid application points to the conclusion that the aid was
not necessary. It is aware that Law No 46/1982, which
had been approved previously, allows for a 24-month
retroactive period for costs incurred by the applicant.
However, the aid in question was subject to a prior
notification requirement under both the R & D and the
motor vehicle frameworks and should therefore have
been scrutinised by the Commission. Given the nature of
the project, the Commission finds that Iveco could not
be certain that the project would qualify for aid and
could not therefore take it for granted that such aid
would be approved. Nevertheless, it started the project in
1994 and applied for State aid only in 1996.

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(47) Given that the aid has no incentive effect, the Commis-
sion does not consider that further analysis of the case,
in particular of the specific industrial research and pre-
competitive development content of the subprojects, as
well as the admissible aid intensities is necessary.

V. CONCLUSION

(48)

The Commission concludes that the R & D aid which
the Italian authorities plan to grant
to Iveco is not
necessary in order to achieve the objectives referred to in
Article 87(3)(c) of the Treaty, in particular that of facili-
tating the development of certain economic activities.
The aid in question has therefore to be regarded as being
incompatible with the common market,

The aid may accordingly not be implemented.

Article 2

inform the Commission, within two months of
Italy shall
notification of this Decision, of the measures taken to comply
herewith.

Article 3

This Decision is addressed to the Italian Republic.

HAS ADOPTED THIS DECISION:

Done at Brussels, 6 June 2001.

Article 1

The State aid which Italy is planning to grant to Iveco SpA,
amounting to ITL 31,249 billion in nominal terms, is incom-
patible with the common market.

For the Commission

Mario MONTI

Member of the Commission