2003/62/EC: Commission Decision of 18 September 2002 on the State aid which the United Kingdom is planning to implement for Vauxhall Motors (UK) Ltd (Text with EEA relevance) (notified under document number C(2002) 3340)
Date: 2002-09-18
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, investment project, motor vehicle industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 18 September 2002

on the State aid which the United Kingdom is planning to implement for Vauxhall Motors (UK)
Ltd

(notified under document number C(2002) 3340)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/62/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

By letter dated 1 March 2002, the United Kingdom
submitted comments on the opening of the investigation
procedure. The United Kingdom sent additional informa-
tion on 9 July 2002.

Having regard to the Treaty establishing the European Commu-
nity, 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 regard to Council Regulation (EC) No 659/1999 of 22
March 1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (1),

Having called on interested parties to submit their comments
pursuant to those provisions,

Whereas:

Procedure

(1)

(2)

(3)

By letter dated 23 August 2001 the United Kingdom
authorities notified the proposed aid to the Commission,
pursuant to Article 88(3) of the Treaty. On 23 October
to
2001 the Commission asked additional questions,
which the United Kingdom replied by letter dated 16
November 2001.

By letter dated 28 January 2002,
the Commission
informed the United Kingdom that it had decided to
initiate the procedure provided for in Article 88(2) of
the Treaty in respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities. The Commission called on interested parties to
submit their comments. The Commission received no
comments from interested parties.

(1) OJ L 83, 27.3.1999, p. 1.

Detailed description of the proposed aid

(5)

(6)

The recipient of the aid would be Vauxhall Motors (UK)
Ltd, which is a wholly-owned subsidiary of the General
Motors Corporation. The aid in question is regional
investment aid for the transformation of the Ellesmere
Port car plant from a single-model production facility to
a two-model plant capable of switching production
between the two models according to demand. After the
investment, the plant would be able to produce a mix of
Astras and of the new replacement Vectra passenger car
models. According to the information provided by the
United Kingdom in the notification, the project would
safeguard 771 jobs at Vauxhall Motors and create
approximately 530 jobs in the supply chain.

General Motors Europe considered two alternative sites
for the project, Ellesmere Port and Antwerp. The final
decision in favour of Ellesmere Port was part of a major
restructuring within General Motors Europe, with the
objective of returning that company to profitability. As
part of that plan, passenger car production in Luton was
to cease at the end of the life of the current Vectra

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model at the end of the first quarter of 2002. From then
on, the remaining Luton facilities would concentrate on
commercial and off-road vehicles, while passenger car
production would be concentrated at Ellesmere Port.
Ellesmere Port would continue to produce the Astra,
incorporate the next-generation Vectra and transform
the facility into a two-model flexi plant.

The replacement Vectra is 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, the
Netherlands and Spain, although other smaller Western
and Central European passenger car markets are also
supplied.

The total amount of eligible investments amounts to
the
GBP 156,198 million. The net present value of
eligible investments
is GBP 153,814 million. These
investments are divided into building/construction/land
improvements
(GBP 8,352 million), machinery and
equipment (GBP 131,343 million) and tools and dies
(GBP 14,119 million).

Aid amounting to GBP 10 million (net present value:
GBP 9,847 million) would be provided as Regional
Selective Assistance, which is an approved scheme based
on the 1982 Industrial Development Act. The notified
aid intensity is 6,4 %.

(7)

(8)

(9)

(10)

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 region-
ally assisted area for the purposes of Article 87(3)(c) of
the Treaty, under the regional aid map for the period
2000 to 2006, with a regional ceiling of 15 % net grant
equivalent (nge).

Decision of the Commission to initiate the proce-
dure provided for in Article 88(2) of the Treaty

(11)

the Commission
By letter dated 28 January 2002,
informed the United Kingdom that it had decided to
initiate the procedure provided for in Article 88(2) of
the Treaty, since it had doubts as to whether the aid was
either necessary or proportionate.

(12) As regards the necessity of the aid, the Commission
needed to verify that
the Ellesmere Port project
concerned a transformation, involving a radical change
in production structures on an existing site. Secondly, it
needed to determine whether Antwerp was a real alter-
native in terms of the technical feasibility of carrying out
the project there.

(13) As regards the proportionality of the aid, the Commis-
sion expressed doubts on certain elements in the cost
the Commission
benefit analysis (CBA).
in
questioned the
Antwerp would be lower; the estimated inward transport

assumption that

training costs

In particular,

costs and procurement pattern; and the anticipated
repercussions,
including sales losses, on the Vauxhall
brand image in the United Kingdom, should the project
be located at Antwerp.

Comments from interested parties

(14)

The Commission did not receive any comments from
interested parties.

Comments from the United Kingdom

(15)

(16)

By letter dated 1 March 2002, the United Kingdom
submitted to the Commission its comments on the
opening of the procedure. By letter dated 9 July 2002,
the United Kingdom provided further information. These
comments have been taken into account.

The United Kingdom provided a detailed break-down of
the training costs at Antwerp and Ellesmere Port. The
main differences are that, by contrast with Ellesmere
Port, the Antwerp plant is already Andon trained; it is
already familiar with operating as a flexible plant, produ-
cing two models on shared facilities; it has recent experi-
ence of producing the Vectra, so the learning curve is
shorter there; the Antwerp plant and its workforce are
already GBOP (Global Bill of Process) (1) compliant.

(17) As regards the procurement and inward transportation
costs, the United Kingdom explained that the costs in
the CBA were based on the figures used by the GM
Europe Strategy Board (ESB) when the decision was
taken to locate the replacement Vectra project at Elles-
mere Port. In the interim period, Vauxhall undertook
further
calculations based upon actual production
volumes at Luton and Ellesmere Port in 2001 and on
revised budget volume projections for Ellesmere Port for
2002. Comparison of the estimated CBA figures with
those based upon actual production volumes gives a
variance of less than 1 %.

(18)

Finally,
the United Kingdom provided its comments
regarding the possible effects on Vauxhall sales in the
United Kingdom, had a location decision been taken in
favour of Antwerp. It also commented on the possibility
of additional costs resulting from industrial action at the
Ellesmere Port plant as a consequence of such a deci-
sion.

(19) As regards potential sales losses, the ESB had considered
at the time of the decision that failure to locate new
Vectra production at Ellesmere Port might have had a
detrimental effect on United Kingdom sales. However,
the effect would have been very limited, a view which
was confirmed in a GM study provided to the Commis-
sion. To mitigate the loss of sales of Vectra models in
the United Kingdom market if the project had been
awarded to Antwerp, additional marketing costs would
have been necessary.

(1) GBOP is a set of common planning specifications and build
processes, that enables consistency to be achieved across model plat-
forms in both architecture and equipment.

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(20) As regards the potential threat of industrial action in the
United Kingdom if Ellesmere Port had lost a shift of
production on top of the Luton closure announcement,
the United Kingdom considered it very difficult to esti-
mate the scale of such action. The Luton plant closure
had resulted in a one-day stoppage. That was in response
to the complete closure of the Luton plant and the threat
of compulsory redundancies. More disruptive and wide-
spread industrial action was avoided by the voluntary
redundancy packages agreed with the unions and Vaux-
hall. The financial inducement in those packages was far
higher than the minimum set by United Kingdom law
and the costs entailed have been included in the CBA.
Bearing in mind that Ellesmere Port would still have
been an ongoing two-shift Astra plant if Antwerp had
won the Vectra project, the United Kingdom considers it
plausible to assume that a half-day stoppage would have
resulted. The total additional costs resulting from the
above effects are estimated at GBP 171 000.

Assessment of the aid

(21)

(22)

(23)

The measure notified by the United Kingdom for Vaux-
hall Motors (UK) Ltd constitutes State aid within the
It would be
meaning of Article 87(1) of the Treaty.
financed by the State or
through State resources.
Furthermore, as it constitutes a significant proportion of
the funding of the project, the aid is liable to distort
competition in the Community by giving Vauxhall
Motors (UK) Ltd an advantage over competitors not
receiving aid. Lastly, there is extensive trade between
Member States in the automobile market.

The aid in question is intended for an undertaking which
manufactures and assembles cars. The undertaking is
therefore part of
the motor vehicle industry for the
purposes of the Community framework for State aid to
the relevant
the motor vehicle industry (hereinafter
Community guidelines) (1).

The relevant Community guidelines specify that aid
which the public authorities plan to grant to an indivi-
dual project under an authorised aid scheme for an
undertaking operating in the motor vehicle industry
must, in accordance with Article 88(3) of the Treaty, be
notified before being granted if the total cost of the
project amounts to EUR 50 million or if the total gross
aid for the project, whether from the State or the
Community, amounts to EUR 5 million.
In the case
covered by this Decision, both the total cost of the
project and the amount of aid exceed the notification
threshold. Thus, by notifying the proposed aid for Vaux-
hall Motors (UK) Ltd, the United Kingdom has complied
with the requirements of Article 88(3) of the Treaty.

(24)

In view of the character and purpose of the aid, and the
geographic location of the investment, the Commission
considers that the aid at issue is not covered by Article

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

87(2). Article 87(3) specifies other forms of aid which
may be regarded as compatible with the common
market. However, compatibility must be assessed from
the standpoint of the Community as a whole and not in
a purely domestic context. Moreover, in order to main-
tain the proper functioning of the common market and
having regard to the principle in Article 3(g) of the
Treaty, the exceptions provided for in Article 87(3) must
be construed narrowly. With regard to points (b) and (d)
of Article 87(3), it is clear that the aid in question is not
intended for an important project of common European
interest or to remedy a serious disturbance in the United
Kingdom economy, or to promote culture and heritage
conservation. As regards Article 87(3)(a) and (c), the
Commission notes that the investment project is to be
carried out in a region which qualifies for assistance
under point (c). According to the regional map for the
United Kingdom for the period 2000 to 2006 the
project is located in an area with a regional aid ceiling
for large companies of 15 % nge.

(25)

In order to decide whether regional aid is compatible
with the common market under Article 87(3)(c) of the
Treaty, the Commission must check whether the condi-
tions specified in the relevant Community guidelines
have been met.

(26)

(27)

In order to authorise aid in accordance with those guide-
lines,
the
the Commission must, after checking that
region in question is eligible for aid under Community
law, verify that the investor could have chosen an alter-
native site for its project, so as to demonstrate the need
for aid in terms of the mobility of the project.

The Commission has studied the geographic mobility of
the project. In order to demonstrate geographic mobility,
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 for
its project. The United Kingdom authorities have
asserted that such a location is available at the car plant
in Antwerp, Belgium, which currently produces the
Astra model and, until 1998, produced the Vectra
model. The Commission notes that, in considering the
two alternative sites for the project, General Motors
Europe carried out a location study comparing the incre-
mental costs of producing the new Vectra in both loca-
tions. That study, as well as other documents from the
decision-making procedure of General Motors Europe,
were provided to the Commission.
the
together with its external automotive
Commission,
expert, verified, on site, the feasibility of carrying out the
project
in Antwerp. Until 1998 the Antwerp plant
produced the Astra and the previous Vectra model on
the same two assembly lines and it still has sufficient
space available where the bodies of the previous Vectra
model were built. It can therefore be concluded that the

In addition,

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project is mobile in character. Consequently, it may be
considered eligible for regional aid, since the aid is
necessary to attract the investment to the assisted region.

(28)

(29)

The Commission and its external automotive expert have
verified the nature of the investment on the basis of
plant layouts submitted by the United Kingdom and of a
visit to the site. The project in question concerns a trans-
formation,
involving a radical change in production
structures on an existing site with the aim of trans-
forming the site from a single-model production facility
to a flexible two-model plant. The investment project is
therefore eligible for regional aid.

Together with the notification,
the United Kingdom
authorities have provided a CBA comparing the costs of
the two locations. The CBA indicates a net cost handicap
of GBP 18,116 million for the Ellesmere Port location
as compared with the Antwerp location. The handicap
intensity of the project would be 11,8 %.

(30) With the help of its external automotive expert, the
Commission has evaluated the notified CBA, on the basis
of the exchange rate at the time of the location decision,
with a view to ascertaining to what extent the proposed
regional aid is in proportion to the regional problems it
seeks to solve. Following the opening of the procedure,
the United Kingdom clarified some elements in the CBA
on which doubts were raised.

(31) As regards the training cost handicap in the CBA, the
Commission received a detailed breakdown of costs at
both locations. The regional handicap for training costs
in Ellesmere Port amounts to GBP 1,7 million. The
Commission considers
the significantly higher
that
training costs in Ellesmere Port can be considered plau-
sible. The difference can be explained by the fact that, in
contrast to Ellesmere Port, the plant in Antwerp:

— already had recent experience of producing the

Vectra model,

— was already familiar with operating as a flexible two-

model plant,

— was already Andon trained and GBOP (Global Bill of

Process) compliant.

(32) As the assumptions in the CBA concerning procurement
and inward transportation costs have in the meantime
been confirmed by data based upon actual production at
the Ellesmere Port plant, there is no longer any reason
to doubt them.

(33) However,

the Commission's doubts have not been
dispelled as
the possible effects on United
Kingdom sales of carrying out the project in Antwerp or
as regards the possibility of industrial action.

regards

been awarded to Antwerp. However, the Commission
considers that such a decision, in combination with the
preceding Luton plant closure, would have had a detri-
mental effect on the Vauxhall brand, affecting United
Kingdom sales not only of Vectra models but of all
Vauxhall models. It has therefore based its calculation on
potential sales losses of all Vauxhall models during
2002. The Commission estimated the necessary addi-
tional marketing costs on the basis of
its external
experts' assessment at GBP 1.284 million. The Commis-
sion agrees with the assumption that such an effect
would be limited in time and scope, as the ‘emotional’
customer reaction to a location decision in favour of
Antwerp would be dissipated over time.

(35) As regards the possibility of

industrial action in the
United Kingdom if Ellesmere Port had lost a shift of
production, the United Kingdom considers it plausible to
assume that a half-day stoppage could have resulted (as
the earlier Luton plant closure resulted in only one day
of stoppage). That corresponds to the loss of one shift.
However,
it is difficult to accept that exactly half the
workforce would decide for industrial action and the
other half against it. It is therefore prudent to assume
that there would have been a full-day stoppage at the
plant, resulting in costs of GBP 300 000.

(36)

(37)

If that modification is made to the analysis, the cost-
benefit result differs slightly from the one initially noti-
fied. Total additional costs if the Vectra were produced
in Antwerp, resulting from the two above effects, are
estimated at GBP 1,584 million. Consequently, the net
present value of
the regional handicap amounts to
GBP 16,532 million at Ellesmere Port. The net present
value of the eligible costs at Ellesmere Port amounts to
GBP 153,814 million, giving the project a regional
handicap ratio of 10,7 %, compared with Antwerp.

remains

the question of a ‘top-up’

to be
Finally,
addressed, that is to say, a modification of the regional
handicap ratio of between –2 and +4 percentage points,
linked to variations in production capacity on the rele-
vant market in the group concerned, and the assistance
In this particular case, the
area status of the region.
results of the cost-benefit analysis obviate the need for
this as the difference between the regional handicap ratio
(10,7 %) and the planned aid intensity (6,4 %)
is 4,3
percentage points, while the highest possible reduction
according to the relevant Community guidelines would
be -2 percentage points in Article 87(3)(c) regions.

Conclusion

(34) As regards the possible sales losses, the United Kingdom
acknowledged that additional marketing costs would
have been necessary to mitigate lost sales of Vectra
models in the United Kingdom market if the project had

(38)

Thus the project is mobile and the aid is necessary for
the realisation of the project. The aid intensity of the
project (6,4 %) is lower than both the regional handicap
ratio identified by the cost-benefit analysis (10,7 %) and
the regional aid ceiling (15 % nge). The regional aid of

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GBP 9,847 million (net present value) that the United
Kingdom plans to grant for Vauxhall Motors Ltd is there-
fore compatible with the common market under Article
87(3)(c) of the Treaty.

(39) According to the relevant Community guidelines, handi-
caps for which a specific aid will be granted under a
different objective, such as training, may not be taken
into account in the CBA. As a training cost handicap has
been taken into account in the CBA, no further, specific
training aid may be granted to the project,

HAS ADOPTED THIS DECISION:

Article 1

The State aid amounting to GBP 9,847 million (net present
value), which the United Kingdom is planning to grant to
Vauxhall Motors (UK) Ltd for investment in its plant at Elles-
mere Port, is compatible with the common market within the
meaning of Article 87(3)(c) of the Treaty.

Implementation of the aid is accordingly authorised.

Article 2

No further, specific training aid may be granted to the project.

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 18 September 2002.

For the Commission

Mario MONTI

Member of the Commission