2002/781/EC: Commission decision of 20 December 2001 on the State aid which Germany is planning to implement for DaimlerChrysler AG in Kölleda (Text with EEA relevance.) (notified under document number C(2001) 4480)
Date: 2001-12-20
Institutions: European Commission
Subjects: Germany, State aid, control of State aid, location of industry, mechanical engineering, motor vehicle industry

19.10.2002

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Official Journal of the European Communities

L 282/23

COMMISSION DECISION

of 20 December 2001

on the State aid which Germany is planning to implement for DaimlerChrysler AG in Kölleda

(notified under document number C(2001) 4480)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/781/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Detailed description

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

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 those provisions (1),

Whereas:

Procedure

(1)

(2)

(3)

(4)

Germany notified the aid proposal to the Commission
on 29 March 2001. The Commission asked for
additional information by letter dated 17 May, to which
Germany replied by letter dated 8 June.

By letter dated 30 July 2001, the Commission informed
Germany that it had decided to initiate the procedure
laid down in Article 88(2) of the EC Treaty in respect of
the aid.

The Commission decision to initiate the procedure
was published in the Official
Journal of the European
Communities (2). The Commission called on interested
parties to submit their comments on the aid. It received
no comments from interested parties.

By letters dated 22 August and 5 November 2001,
Germany submitted comments on the initiation of the
investigation procedure.

( 1) OJ C 263, 19.9.2001, p. 13.
( 2) See footnote 1.

(5)

(6)

(7)

(8)

DaimlerChrysler AG and Mitsubishi Motors Corporation
are planning the joint production of a small car platform,
or Z-platform, aimed at the small passenger car segment,
where the competition includes the VW Polo, the VW
Lupo and the Toyota Yaris. Production of the vehicles
will take place in the NedCar plant in Born (Netherlands)
for the European markets and in a Mitsubishi plant in
Japan for the Japanese and Asian markets.

For the production of the petrol engines for the European
Z-car vehicles DaimlerChrysler AG and Mitsubishi
Motors Corporation plan to set up a completely new
plant. The project is expected to create some 500 new
jobs. On completion of the project,
installed engine
production capacity in Kölleda will be 300 000 engines
per year, of which 200 000 will be delivered to the
NedCar plant and 100 000 to Japan.

The beneficiary of the aid would be DaimlerChrysler
AG. With the establishment in 2003 of a new 50/
50 joint venture between DaimlerChrysler AG and
Mitsubishi Motors Corporation that will manage the
engine production plant, all the investments and aid will
be transferred to this new company.

According to the notification,
the total amount of
investment is EUR 243,9 million (net present value:
EUR 220,4 million), of which EUR 207,3 million (net
present value: EUR 185 million) represents eligible costs.
The total planned aid amounts to EUR 72,6 million (net
present value: EUR 63,8 million). Germany stated that
the project does not involve first-tier component sup-
pliers within the meaning of the framework for State aid
to the motor vehicle industry.

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(9)

Kölleda in Thuringia is an assisted area within the
meaning of Article 87(3)(a) of the EC Treaty on the basis
of the regional aid map approved by the Commission
for the period 2000 to 2003, with a regional aid ceiling
of 35 % for large companies. The aid is to be granted to
DaimlerChrysler under the 30th outline plan for the
Joint Federal/Länder scheme for improving regional
economic structures (Gemeinschaftsaufgabe (GA) ‘Verbes-
serung der regionalen Wirtschaftsstruktur’) and under the
Investment Allowance Law 1999. The aid would be paid
over time in the light of progress with the investment
project. Germany stated that, apart from the regional
aid, no aid is planned for other purposes.

(14)

Lastly, the Commission doubted that the production
capacity of the DaimlerChrysler/Mitsubishi group would
increase after the project by only 33 000 vehicles per
year, as indicated by Germany in the notification.

Comments from interested parties

(15) The Commission did not receive any comments from

interested parties.

(10) According to Germany, the investment could be carried
out at an alternative site, namely in Nyergesujfalu
in Hungary. The cost-benefit analysis in the initial
notification puts at 37,8 % the intensity of the regional
handicap of Kölleda in relation to a comparable invest-
ment made at the alternative site in Nyergesujfalu.

Commission decision to initiate the procedure under
Article 88(2) of the EC Treaty

(11) By letter dated 30 July 2001, the Commission informed
Germany that it had decided to initiate the procedure
laid down in Article 88(2) of the EC Treaty in respect of
the following:

(12)

the Commission sought clarification of

Firstly,
the
individual eligible investments in order to be able to
verify the regional handicap ratio and the aid intensity
of the project.

(13)

Secondly, it had doubts about a number of assumptions
in the cost-benefit analysis submitted by Germany,
which did not seem to comply with the Commission’s
practice. The doubts related in particular to certain risk
factors (e.g. due to language difficulties) in the event of
production being located in Nyergesujfalu, such as
technology transfer during the planning/production
phase, support from original machine manufacturers,
repercussions on the brand image or the necessary costs
of quality management in Hungary. Other points which
gave the Commission cause for concern related to the
assumed cost of the land in both locations, the difference
in manpower costs, certain handicaps in the category
‘other costs’ and the costs of building/construction and
storage in Hungary.

Comments from Germany

(16) By letters dated 22 August and 5 November 2001,
Germany submitted its comments on the opening of the
investigation procedure.

(17) Germany explained the terms on which the land on
which the plant in Kölleda is being constructed was
offered by the town of Kölleda to DaimlerChrysler AG.
In addition, further documents were submitted to the
Commission, such as a study carried out by an indepen-
dent expert to assess the value of the land.

(18) Germany also provided additional information on the
level of the eligible investment costs. As regards the
doubts raised by the Commission when it initiated
opening the procedure about elements of the cost-
benefit analysis, Germany explained in more detail the
assumptions regarding the ‘technology transfer during
planning/production’,
‘support from original machine
manufacturers’, ‘brand image repercussions’, ‘manpower
costs’, the handicaps under ‘other costs’, ‘costs of build-
ing/construction’ and ‘storage costs’.

(19) As regards the change in production capacity, Germany
stated in particular that the planned increase in annual
production capacity by 140 000 vehicles (through the
purchase of existing Volvo capacity in the NedCar plant)
was not relevant from a State aid point of view as the
transaction,
increase resulted from a separate legal
namely the purchase of an existing plant. Moreover, this
transaction would not increase the total production
capacity of the motor vehicle industry in Europe. The
planned aid for the engine plant in Kölleda was neither
directly nor indirectly linked to the purchase of the share
in NedCar by DaimlerChrysler AG. In addition, Germany
stated that there was no causal link between the aid for
the engine plant in Kölleda and the temporary increase
in annual production capacity in the NedCar plant by
33 000 vehicles owing to the discontinued Volvo and
Mitsubishi models.

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Assessment of the aid

(20) The measure notified by Germany for DaimlerChrysler
AG constitutes State aid within the meaning of
Article 87(1) of the EC Treaty. It would be financed by
the State or through State resources. As it represents a
significant proportion of the funding of the project, the
aid is liable to distort competition in the Community by
giving DaimlerChrysler AG an edge over competitors
not receiving aid. Lastly, there is extensive trade between
Member States in the motor vehicle industry.

(21) The aid is intended for a firm which manufactures and
assembles cars and which is, therefore, part of the
industry within the meaning of the Community frame-
work on state aid to the industry (hereinafter ‘the motor
vehicle framework’) (3).

(a)

(22) The motor vehicle framework specifies that aid which
the public authorities plan to grant to an individual
project under an authorised aid scheme for a firm
operating in the motor vehicle industry must be notified
in advance if either of the following thresholds is
the project equals
reached:
EUR 50 million, or (b) total gross aid for the project,
whether State aid or Community aid, equals EUR 5 milli-
on. Both the total cost of the project and the amount of
aid exceed the notification threshold. Thus, in notifying
the proposed aid for DaimlerChrysler AG, Germany has
complied with the requirements of Article 88(3) of the
EC Treaty.

the total cost of

(23)

(a),

that

subparagraphs

In view of the character and purpose of the aid, and the
geographic location of the investment, the Commission
(b) and (c) of
considers
Article 87(2) of
the EC Treaty are not applicable.
Article 87(3) specifies other forms of aid which may be
considered to be compatible with the common market.
Compatibility must be assessed from the standpoint of
the Community as a whole and not in a purely domestic
context. In order to maintain the proper functioning of
the common market and having regard to the principle
in Article 3(g) of the EC Treaty, the exceptions in
Article 87(3) must be construed narrowly. With regard

to the exceptions in Article 87(3)(b) and (d), it is clear
that the aid in question is not intended for a project of
common European interest or to remedy a serious
disturbance in the German economy or to promote
culture and heritage conservation. As regards the excep-
tions in Article 87(3)(a) and (c), the Commission notes
that the investment project is to be carried out in a
region in Thuringia, which qualifies for assistance under
subparagraph (a). Under the new regional aid map for
Germany, approved by the Commission on 29 July
1999 for the Article 87(3)(a) regions, the project is
located in an area with a regional aid ceiling for large
companies of 35 % gross grant equivalent.

(24) As regards the sale to DaimlerChrysler AG by the town
of Kölleda of the land on which the project is to be
carried out, Germany provided additional documents
and explained in its comments on the initiation of the
procedure the terms on which the land was sold.
According to Germany, in the last three years land on
the adjoining industrial and business estate has been
sold at an average price of DEM 11 per m2 to companies
setting up operations there. An assessment of the value
of the land was carried out by an independent expert, as
required under the applicable German law (§ 192
Baugesetzbuch). This evaluation, which puts the value of
the land at DEM 11,80 per m2, was sent
to the
Commission. Germany stated that the land in question
was being offered to DaimlerChrysler at DEM 12
DEM per m2. The Commission therefore considers that
DaimlerChrysler AG is not receiving any aid for the
purchase of the land.

(25)

In order to decide whether regional aid granted under
Article 87(3)(a) of the EC Treaty is compatible with the
common market, the Commission must check whether
the conditions specified in the motor vehicle framework
have been met.

(26) To authorise aid under this framework, the Commission,
after checking that the region in question is eligible for
aid under Community law, establishes whether the
investor could have chosen an alternative site for its
project so as to demonstrate the need for the aid, with
particular reference to the mobility of the project.

( 3) OJ C 279, 15.9.1997, p. 1.

(27) The Commission has studied the geographic mobility of
the project. In this respect, the automotive group for
which the aid is proposed must prove in a clear and

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convincing way that there is an economically viable
alternative location for its project. It notes that, following
the decision to look for a completely new production
site, a selection study was carried out for DaimlerChrys-
ler by outside consultants (A.T. Kearney), comparing 50
sites in seven European countries. As a result of the
study and taking into account the technical, quantitative,
qualitative and risk assessments, the two best alternative
locations were identified as Kölleda and Nyergesujfalu.
Given the nature of the investment as a project at a
completely new location and the documents submitted
by Germany (e.g. location studies, correspondence with
Hungarian authorities), Nyergesujfalu is considered to
be an economically viable alternative location to Kölleda.
The Commission therefore concludes that the project is
mobile in character and can be considered eligible for
regional aid since the aid is necessary to attract the
investment to the assisted region.

(28) Regional aid intended for modernisation and rationalis-
ation, which is generally not mobile, is not authorised in
the motor vehicle sector. However,
in
question concerns a completely new production plant
on a greenfield site and is therefore considered to be a
transformation, which is eligible for regional aid.

the project

(29) As regards the eligible costs, the Commission has taken
into account only those costs which are incurred in the
assisted area. Of the total nominal costs of the project of
EUR 243,9 million, an amount of EUR 36,6 million
represents investment in vendor tooling at sites outside
the assisted area. Consequently, the eligible costs that
have been taken into account by the Commission
amount
to EUR 207,3 million (net present value:
EUR 185 million).

(30) With the help of its external automotive expert, the
Commission has evaluated the notified cost-benefit
analysis with a view to ascertaining the extent to which
the proposed regional aid is in proportion to the regional
problems it seeks to solve. Following the initiation of
the procedure, Germany clarified some elements in the
cost-benefit analysis about which doubts had been raised
(such as the level of eligible costs, the assumptions on
labour costs and building/construction costs and the
required size of land in both locations). The main reason
for the handicap of Kölleda is the significantly higher
level of labour costs in Germany.

(31) However,

the Commission’s doubts have not been
alleviated with respect to certain risk factors in the
‘Nyergesujfalu scenario’. These relate in particular to

language difficulties in Hungary and to factors such as
the technology transfer during the planning/production
phase and the more difficult support from original
machine manufacturers. The Commission believes that
there would be a need for a substantial training pro-
gramme in Hungary, including language training. In its
comments on the initiation of the procedure, Germany
stated that such costs have been taken into account in
the categories ‘language training’, ‘technical training at
‘employees working
suppliers’,
abroad’ and ‘basic skills
adding up to
EUR 6,93 million (compared with EUR 3,29 million in
Kölleda). Germany considers that the resulting handicap
of EUR 3,64 million is sufficient to take into account all
risk factors.

‘training on the job’,

training’,

(32) The Commission does not consider it plausible that a
handicap of EUR 3,64 million is sufficiently high.
Hungary is a country where DaimlerChrysler has no
automotive production experience so far. The Com-
mission considers it very likely that the language advan-
tage, the closer location to DaimlerChrysler’s central
engine planning in Stuttgart and the brand image are
decisive factors for a location decision on the part of
DaimlerChrysler in favour of Kölleda. In particular, in
the case of Nyergesujfalu, there would be a real risk of a
slower start-up with a loss of production. The more
remote geographical location of Nyergesujfalu and the
consequently more complicated logistical structure also
lead to higher logistical risks (e.g. in order to avoid
disruptions of production in the event of transport
difficulties, strikes, etc.), especially since most of the
parts would have to be supplied, according to Germany,
from outside Hungary.

(33) To take these factors into account, the Commission, in
a prudent estimate and after consulting its external
automotive expert, has included in the cost-benefit
analysis, instead of the notified EUR 3,64 million, an
amount of EUR 14,49 million. This reflects 1 % of total
turnover (number of engines produced x the respective
ex-factory unit price of the engines) over the five-year
assessment period.

(34) This modification to the analysis produces a cost-benefit
result that differs from the one initially notified. The net
present value of the regional handicap amounts to
EUR 59,07 million in Kölleda, while the net present
the eligible costs in Kölleda amounts to
value of
EUR 185 million, giving a handicap intensity for the
project, compared with Nyergesujfalu, of 31,93 %.

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(35)

Finally, in view of the sensitive character of the motor
vehicle industry, the Commission has also considered
the question of a ‘top-up’, which is an adjustment of the
allowable aid intensity of between - 2 and + 4 percentage
points, linked to the effects of the investment project
on competition,
in particular through variations in
production capacity the group concerned on the relevant
market and the assisted area status of the region. The
impact on the industry is considered ‘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. As most vehicle
producers manufacture their own engines, the Com-
mission considers that the relevant market for engine
production by a vehicle manufacturer is the vehicle
market for which the engines are built. The engines in
the plant in Kölleda are built for passenger cars.

(36) Germany provided contradictory information as regards
the capacity of the NedCar plant in Born (Netherlands).
While in the initial notification Germany indicated that
the vehicle capacity amounts to 280 000 units per year
before the investment and 313 000 units per year after
the investment, it stated in the letter to the Commission
dated 5 November 2001 that the capacity after the
only
plant
investment
215 000 vehicles. This was attributed to the training
measures needed and the conversion measures necessary
to prepare the production lines for the new models.
However, the Commission considers, after consulting its
external automotive expert, that the plausible production
capacity (before and after the investment) in the NedCar
plant amounts to 280 000 units.

amounts

the

to

in

(38) The Commission does not agree with Germany on this
point. The motor vehicle framework requires an analysis
of ‘variations in production capacity on the relevant
market in the group concerned’. In this respect, it is not
relevant whether a capacity increase results from the
establishment of a new plant or the purchase of a share
in an existing plant. Both types of capacity increase have
a comparable impact on competition.

(39) Germany claims that the purchase of Volvo’s share in
NedCar by Mitsubishi should be seen as being indepen-
dent of the DaimlerChrysler/Mitsubishi engine project in
Kölleda. However, it is obvious that there would be no
need for additional engine production capacity if there
were not a similar increase in car assembly capacity in
the NedCar plant. In fact, on completion of the project,
installed engine production capacity in Kölleda will be
300 000 engines per year, of which 200 000 will be
used in the NedCar plant for the production of passenger
cars for the European market. While Mitsubishi’s pro-
duction capacity for passenger cars in the NedCar plant
currently amounts to 140 000 units per year,
this
capacity increases by an additional 140 000 units per
year after the investment in Kölleda. In addition, the
capacity of Volvo, whose share in the NedCar plant is
being sold to Mitsubishi, will not disappear but will be
shifted to the Volvo plant in Gent (Belgium), which will
significantly increase its capacity as well.

(40) Taking

a

into

increase

capacity

account
the capacity increase of

of
the group
140 000 units,
would be significant. The production capacity of the
DaimlerChrysler and Mitsubishi group in Europe
amounts to 1 602 080 vehicles before the investment
(9 %
and 1 742 080 vehicles after the investment
increase).

(37) Germany also argued that

the vehicle production
capacity of DaimlerChrysler and Mitsubishi would
increase by 140 000 units per year, not as a result of the
aid for the engine plant but as a result of the acquisition
of a share in an existing car plant (4). As this acquisition
was a separate transaction from the investment in the
engine plant and was not supported by State aid and as
the total production capacity of the motor vehicle
industry in Europe was not changed as a result of this
transaction, Germany argued that the capacity increase
of 140 000 units should not be taken into account in
the analysis of the market impact (‘top-up’).

( 4) The plant in question is the NedCar plant in Born (Netherlands),
Netherlands which is owned 50/50, by Volvo and Mitsubishi and
has a capacity of 280 000 vehicles/year. Mitsubishi will take over
Volvo’s 50 % share in the plant.

(41) Taking into account the region’s assisted area status
under Article 87(3)(a) and the ‘high’
impact of the
variation of the group’s production capacity, the Com-
mission has reduced the allowable aid intensity of the
project by one percentage point to 30,93 % for the
investment in Kölleda.

Conclusion

(42) The Commission considers that the project is mobile
and the aid necessary for the realisation of the project.
The net present value of the aid to be granted to
DaimlerChrysler for the project in Kölleda amounts to
EUR 63,8 million with a planned aid intensity of 34,5 %
gross grant equivalent. Even though this ratio is lower
than the regional aid ceiling of 35 % gross grant
equivalent, the planned aid intensity is none the less

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higher than the regional handicap ratio as calculated in
the cost-benefit analysis and modified by the top-up,
which amounts to 30,93 % of the eligible investments
costs.

(43) Consequently, the Commission can authorise aid equal
the eligible investment of
to only 30,93 % of
EUR 185 million (net present value), which corresponds
to EUR 57,22 million (net present value). The planned
aid of EUR 6,58 million (net present value) is incompat-
ible with the common market,

for its investment in Kölleda is compatible with the common
market within the meaning of Article 87(3)(a) of the Treaty.

2.
The State aid amounting to EUR 6,58 million which
Germany is planning to implement for DaimlerChrysler AG
for its investment in Kölleda is incompatible with the common
market and may accordingly not be implemented.

Article 2

HAS ADOPTED THIS DECISION:

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 20 December 2001.

Article 1

1.
The State aid amounting to EUR 57,22 million which
Germany is planning to implement for DaimlerChrysler AG

For the Commission

Mario MONTI

Member of the Commission