State aid — United Kingdom — Aid C 4/2002 (ex N 594/01) — Vauxhall/Ellesmere Port — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2002-03-28
Institutions: European Commission
Subjects: European Commission, State aid, United Kingdom, control of State aid, exchange of information, financial aid, motor vehicle industry

C 77/28

EN

Official Journal of the European Communities

28.3.2002

STATE AID — UNITED KINGDOM

Aid C 4/2002 (ex N 594/01) — Vauxhall/Ellesmere Port

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2002/C 77/05)

(Text with EEA relevance)

By means of the letter dated 23 January 2002, reproduced in the authentic language on the pages
following this summary, the Commission notified the United Kingdom of its decision to initiate the
procedure laid down in Article 88(2) of the EC Treaty concerning the abovementioned aid.

Interested parties may submit their comments on the aid in respect of which the Commission is initiating
the procedure within one month of the date of publication of this summary and the following letter, to:

European Commission
Directorate-General for Competition
State Aid Registry
B-1049 Brussels
Fax (32-2) 296 12 42.

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

Assessment

Procedure

The aid proposal was notified on 23 August 2001. The
Commission asked additional questions on 23 October 2001,
to which the United Kingdom replied by letter dated 16
November 2001.

The aid is assessed under the Community framework for State
aid to the motor vehicle industry. According to this framework,
the Commission shall ensure that
the aid granted is both
necessary for the realisation of the project and proportional
to the gravity of the problems.

Description

The recipient of the aid would be Vauxhall Motors (UK) Ltd.
The aid in question is regional investment aid leading to the
retooling from a single model production plant to a two-model
plant with the capacity to switch production between two
models. After the investment, the plant in Ellesmere Port will
be able to produce a mix of Astras and new Vectra models.
The Ellesmere Port plant is located in a regionally assisted area
in the sense of Article 87(3)(c) EC with a regional ceiling of
15 % net grant equivalent.

total

investments

amount of

The
to
eligible
GBP 156,198 million (net present value of GBP 153,814
million). The planned aid amounts to GBP 10 million (net
present value: GBP 9,847 million). The notified aid intensity
is 6,4 %. According to the United Kingdom, General Motors
Europe considered two alternatives
the project,
Ellesmere Port and Antwerp.

amounts

sites

for

In order to demonstrate the necessity for regional aid, the aid
recipient must clearly prove that it has an economically viable
alternative location for its project. The technical nature of the
investment and the feasibility to carry out
in
Antwerp needs to be clarified.

the project

Port. However,

the planned aid is

the project of 11,8 % for

As regards proportionality, the Commission needs to ensure
that
in proportion to the regional
problems it
is intended to resolve. For that, a cost-benefit
analysis (hereinafter referred to as CBA) method is used. The
CBA notified by the United Kingdom results in a handicap
location in
intensity of
doubts
Ellesmere
to the
concerning the CBA. These
assumed higher
the assumed
inward transport costs, the assumed procurement pattern and
the repercussion of carrying out the project in Antwerp on the
Vauxhall brand image in the United Kingdom with possible
repercussions on market share and sales. At this stage, the
Commission cannot exclude that the proposed aid is overcom-
pensating the real regional handicap of the project.

the Commission has
in particular

training costs

in Antwerp,

relate

the

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Official Journal of the European Communities

C 77/29

Conclusion

The Commission therefore decided to initiate the procedure
laid down in Article 88(2) of the EC Treaty.

TEXT OF THE LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the aid referred to above,
it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

Procedure

(1) The United Kingdom authorities notified the above-
mentioned aid proposal to the Commission pursuant to
Article 88(3) of the EC Treaty by letter dated 23 August
2001 (registered on 28 August 2001). The Commission
asked additional questions on 23 October 2001, to which
the United Kingdom replied by letter dated 16 November
2001 (registered on 21 November 2001).

Detailed description of the project

(2) The recipient of the aid would be Vauxhall Motors (UK)
Ltd, which is a wholly owned subsidiary of General
Motors Corporation. The aid in question is regional
investment aid leading to the retooling from a single
model production facility to a two-model plant with the
capacity to switch production between two models as
in question is situated in
demand varies. The plant
Ellesmere Port and currently produces the Astra model.
After the investment, it will be able to produce a mix of
Astras and of the new replacement Vectra passenger car
models. The replacement Vectra is to be built in Ellesmere
Port from April 2002 onwards. According to the United
Kingdom, the project will safeguard 771 jobs at Vauxhall
Motors and create approximately 530 jobs in the supply
chain.

(3) The replacement Vectra will be designed to compete in
the upper-medium segment of the European passenger car
market. The main geographical markets for both the
current Astra model and the replacement Vectra model
are Germany, the United Kingdom, France, Italy, Holland
and Spain, although other smaller western and central
European passenger car markets are also supplied.

(4) According to the notification, the total amount of eligible
investments amounts to GBP 156,198 million. The net
present value of the eligible investments is GBP 153,814
million. These investments are divided as follows (in GBP
million):

Building/land improvements

Machinery and equipment

Tools and dies

8,352

131,343

14,119

Total

153,814

(5) The aid of GBP 10 million (net present value: GBP 9,847
million) would
selective
assistance, which is an approved scheme based on the
Industrial Development Act from 1982. The notified aid
intensity is 6,4 %.

be provided

regional

as

(6) The Ellesmere Port plant is located in the Westminster
ward of Ellesmere Port and Neston in Cheshire. This
region was recognised by the Commission as a regionally
assisted area in the sense of Article 87(3)(c) EC, under the
regional aid map for the period 2000-2006, with a
regional ceiling of 15 %.

(7) According to the United Kingdom, General Motors
Europe considered two alternatives sites for the project,
Ellesmere Port and Antwerp. The final location decision in
favour of Ellesmere Port was part of a major restructuring
within General Motors Europe with the objective of
to return GM Europe to
generating savings sufficient
profitability. As part of
car
this plan, passenger
production in Luton would cease at the end of the life
of the current Vectra model at the end of the first quarter
of 2002. From this point forward, the remaining Luton
facilities would concentrate on commercial and off-road
vehicles, while passenger
car production would be
concentrated at Ellesmere Port. Ellesmere Port will
incorporate the next-
continue to produce the Astra,
generation Vectra and turn the facility into a two-model
flex plant.

(8) The United Kingdom authorities have provided together
with the notification a cost-benefit analysis (hereinafter
referred to as CBA) comparing the costs and benefits in
the two locations. The CBA indicates a net cost handicap
of GBP 18,116 million for the location in Ellesmere Port
in comparison with the
location in Antwerp. The
handicap intensity of the project would be 11,8 %.

Assessment of the aid

(9) According to Article 87(1) of the EC Treaty, any aid
granted by a Member State or through State resources
in any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods shall, in so far as it affects
trade between Member States, be incompatible with the
common market. Pursuant to the established case-law of
the European Courts, the criterion of trade being affected
is met
firm carries out an economic
activity involving trade between Member States.

the recipient

if

resources

to an individual

it wanted to carry out

(10) The Commission notes that the notified aid is granted
through State
company
favouring it by reducing the costs it would normally
have to bear if
the notified
investment project. Moreover, the recipient of the aid,
Vauxhall Motors,
is a company manufacturing and
selling cars, which is an economic activity involving
trade between Member States. Therefore,
the aid in
question falls within the scope of Article 87(1) of the
EC Treaty.

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Official Journal of the European Communities

28.3.2002

(11) Vauxhall Motors is active in the motor vehicle industry.
Consequently,
the aid granted to it shall be assessed
according to the Community framework for State aid to
the motor vehicle industry (1).

(12) According to the Community framework for State aid to
the motor vehicle industry (hereinafter referred to as the
‘car framework’), the Commission shall ensure that the aid
granted is both proportional
the
problems it intended to solve and necessary for the real-
the project. Both tests, proportionality and
isation of
necessity, must be satisfied if
the Commission is to
authorise State aid in the motor vehicle industry.

to the gravity of

(13) According to point 3(2)(a) of the car framework, in order
to demonstrate the necessity for regional aid,
the aid
recipient must clearly prove that it has an economically
viable alternative location for its 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.

(14) The existence of a viable alternative defines the mobility
of the project; mobility may if necessary be demonstrated
by investors on the basis of studies they have carried out
in order to identify the final location. That alternative site
need not necessarily always be located in the Community.
However, the Commission verifies the likelihood of the
alternative, particularly when the relevant markets are
the
considered. Thus,
aid,
the
Commission studies the geographical mobility of
notified project,
region in
question is eligible for aid under Community law. No
regional aid may be authorised for a project which is
not geographically mobile.

checking that

authorise

regional

after

the

to

(15) The Commission notes that according to the new regional
map in the United Kingdom,
the project would be
situated in an assisted area pursuant to Article 87(3)(c)
of the EC Treaty with a maximum regional ceiling of
15 % nge.

(16) The UK authorities have asserted that a real economically
realistic alternative location to Ellesmere Port would be to
carry out the investment in the car plant in Antwerp,
Belgium, which currently produces the Astra model and,
until 1998, produced the Vectra model.

(17) The Commission notes that when assessing the mobility
of a project, it tries to take into account all the relevant
factors that have or might have influenced a decision to
invest in a certain location. Among such factors are, inter
alia the location study, the location of the plant in respect
of the main markets and the business rationale of an
investment decision. The aim is to assess the situation
as a whole.

(18) The United Kingdom stated that the best viable alternative
location to Ellesmere Port would be to carry out the
investment in Antwerp, Belgium. The Commission notes
in considering the two alternative sites for the
that,

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

provided

the timing of

Europe, were

project, General Motors Europe carried out a study,
comparing the incremental costs of producing the new
Vectra in both locations. The study, as well as additional
from the decision-making procedure of
documents
the
General Motors
to
Commission. As regards
the decision,
Vauxhall Motors approached the United Kingdom auth-
orities in December 2000 for support to help offset the
selective
cost
advantages of Antwerp. A regional
to
assistance offer of GBP 10 million was made
Vauxhall Motors in January 2001, conditional on EC
approval. On 1 February 2001, the European Strategy
Board of General Motors Europe decided in favour of
the Ellesmere Port location. As regards the technical feasi-
bility to carry out the project in the alternative location,
the Commission needs to verify whether Antwerp was a
real alternative.

(19) Regional aid intended for modernisation and rational-
isation, which is generally not mobile, is not authorised
in the motor vehicle sector. However, a transformation,
involving a radical change in production structures on the
existing site could be eligible for
regional aid. The
Commission has to verify that the planned project does
not
include any elements of modernisation, which is
completely excluded from all aid.

the mobile

(20) According to point 3(2)(c) of the car framework, when
considering
the
Commission needs to ensure that the planned aid is in
proportion to the regional problems it
is intended to
resolve. For that, a cost-benefit analysis method (here-
inafter referred to as CBA) is used.

aspects of

a project,

(21) A CBA compares, with regard to the mobile elements, the
costs which an investor would bear in order to carry out
the 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 authorises
regional aid within the limit of the regional handicaps
resulting from the investment in the comparator plant.

the

Port

two locations, Ellesmere

(22) The Commission notes that the United Kingdom auth-
orities have provided with their notification a CBA
and
comparing
Antwerp.
the car
In accordance with point 3(2)(c) of
framework, operating handicaps are assessed over three
years in the CBA since the project
in question is an
expansion project, not a greenfield site. The time period
covered by the submitted CBA is April 2002 to March
2005,
from the beginning of
production in compliance with point 3(3) of Annex I to
the car framework. The CBA, based on exchange rates at
indicates a net cost
the time of the location decision,
handicap of GBP 18,116 million for the location in
Ellesmere Port
in comparison with the location in
Antwerp.

three years

that

is

(23) The Commission has assessed the information contained
in the CBA provided and notes that further explanations
are necessary before it can reach a final decision. This
relates to elements used in the CBA, especially with
regard to the following elements.

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Official Journal of the European Communities

C 77/31

(24) The Commission has some doubts on the assumed,
necessary training costs in the CBA, which assumes that
training cost in Ellesmere Port are significantly higher
than in Antwerp. The United Kingdom justifies this
assumption by the fact that Antwerp already has been a
flexible plant in the recent past and was therefore able to
from the existing experience and skills base.
profit
Furthermore,
the Antwerp plant had already produced
the current Vectra model until 1998 and has installed a
higher level of standardised, modern production tech-
niques. Although the Commission considers it plausible
that the necessary training costs are higher in Ellesmere
Port than in Antwerp, there are doubts whether the extent
of the handicap in the CBA is justified. The CBA assumes
that necessary training costs in Ellesmere Port are around
four times higher than in Antwerp.

that

(25) As regards inward transport costs, which represents the
biggest operating cost handicap of Ellesmere Port, the
the inward
CBA is based on the assumptions
transport cost per vehicle is GBP 203 (EUR 324)
in
Ellesmere Port and DEM 220 (EUR 112)
in Antwerp
and that the procurement pattern is the same in both
locations. In view of the assumed significant differences
in cross-channel
that
Ellesmere Port has already a well developed supplier
park it needs to be clarified whether these assumptions
on inward transport costs are plausible.

costs and the

transport

fact

to

Ellesmere

compared

(26) Even with the grant, Antwerp was still a lower cost
location
Port. However,
according to the United Kingdom, the grant closed the
gap to such an extent that General Motors was able to
take into account two soft factors in favour of Ellesmere
Port when considering the location, namely (a) access to
the UK market, and (b) that Ellesmere Port would be a UK
project, which would in part mitigate an earlier Luton car
plant closure decision. The United Kingdom explained
that in view of the job losses in Luton, an unsuccessful
bid for the new Vectra in Ellesmere Port would have lead
industrial action in Luton and possibly
to a risk of
Ellesmere Port with a
resulting impact on public
perception in the United Kingdom of Vauxhall as a
reliable, quality brand as well as an impact on market
share and sales. However, the United Kingdom considers
it impossible to accurately quantify the effect of these two

it might be
factors. The Commission considers that
necessary to incorporate these effects into the CBA and
asks the United Kingdom to quantify an estimate of the
possible costs.

(27) Consequently, the Commission has doubts whether all the
relevant costs and benefits relating to the two alternative
production locations are accurately reflected in the CBA
provided by the United Kingdom authorities.

(28) Finally,

the Commission in its analysis considers the
question of a ‘top-up’, which is an increase in the
allowable aid intensity intended as a further incentive to
the investor to invest in the region in question. Such
top-ups are authorised on condition that the investment
does not increase the capacity problems facing the motor
vehicle industry. 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. In this respect the
Commission notes that, according to the United Kingdom
authorities, the production capacity of General Motors
Europe amounts to 2 167 932 before the investment
and to 2 058 021 after the investment project (around
into
5 % capacity
reduction). Consequently,
the region
account
and the capacity reduction of
the project
would have a ‘negligible’ impact on competitors.

the Article 87(3)(c) area status of
the group,

taking

Decision

(29) In the

the

light of

foregoing

considerations,

the EC Treaty,

the
Commission, acting under the procedure laid down in
Article 88(2) of
requests the United
Kingdom to submit
its comments and to provide all
such information as may help to assess the aid, within
one month of the date of receipt of this letter. It requests
your authorities to forward a copy of this letter to the
potential recipient of the aid immediately.

(30) The Commission wishes to remind the United Kingdom
that Article 88(3) of the EC Treaty has suspensory effect,
and would draw your attention to Article 14 of Council
Regulation (EC) No 659/1999, which provides that all
unlawful aid may be recovered from the recipient.’