State aid — United Kingdom — State aid C 23/07 (ex N 118/07) — Vauxhall Motors Ltd — Training aid for Ellesmere Port — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2007-10-17
Institutions: European Commission
Subjects: State aid, United Kingdom, continuing vocational training, control of State aid, exchange of information, motor vehicle industry

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Official Journal of the European Union

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PROCEDURES RELATING TO THE IMPLEMENTATION OF THE COMPETITION
POLICY

COMMISSION

STATE AID — UNITED KINGDOM

State aid C 23/07 (ex N 118/07) — Vauxhall Motors Ltd — Training aid for Ellesmere Port

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

(Text with EEA relevance)

(2007/C 243/04)

By means of the letter dated 10 July 2007 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 part of 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
SPA-3 6/5
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

On 5 March 2007 the UK notified the Commission of its intention to grant aid to Vauxhall Motors Ltd,
Ellesmere Port (‘Vauxhall’), a car manufacturing plant which is a unit of Vauxhall Motors Ltd and part of
General Motors Ltd. The notification was made under Article 5 of the Training Aid of Commission Regu-
lation (EC) No 68/2001 which requires all training aid above EUR 1 million to be individually notified.

The aid is intended to support a training programme designed to improve Vauxhall's performance. The
training is designed to be implemented over six years (2007 to 2012 included). The total eligible costs of
the training are GBP 16 583 461. The aid would be granted by the North-West Development Agency as a
direct grant of GBP 8 584 767 payable in six yearly instalments.

The Commission considers that the measure constitutes State aid within the meaning of Article 87 EC.
The Commission will assess the compatibility of
the aid with the common market on the basis of
Article 87(3)(c) EC. In doing so, the Commission will take into consideration the guiding principles of the
Training Aid Regulation. The Commission will also assess whether the aid provides a necessary incentive for
the training, i.e. whether the training would not have been undertaken in the absence of aid. This criterion
of ‘incentive effect’ is a general condition of compatibility for State aid.

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At this stage, the Commission has doubts on the compatibility of the aid for the following reasons. First, it
questions the incentive effect of the aid in relation to three parts of the training programme (regarding
Production System Training, training in GM's Global Manufacturing System and work/study programmes for
undergraduates) which the Commission considers likely to be implemented even in the absence of aid.

Second, the Commission questions the UK's view that the training to be provided within four areas of the
programme (Production System Training, Global Manufacturing System, Cultural Change and Lean
Manufacturing) constitutes general training within the meaning of the Training Aid Regulation, i.e. training
which provides qualifications which can be transferred to other firms or sectors and for which aid can be
granted with up to 50 % of eligible costs. The Commission believes that these parts of the training constitute
specific training within the meaning of the Regulation (maximum aid intensity 25 %).

TEXT OF LETTER

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

1. THE PROCEDURE

(1) By letter dated 28 February 2007, registered with the Commission on 6 March 2007, the UK authori-
ties notified the Commission of the above-mentioned measure for General Motor's Vauxhall assembly
plant at Ellesmere Port. The Commission requested complementary information by letter of 4 April
2007 (ref. D/51586), to which the UK authorities replied on 22 May 2007.

2. DESCRIPTION OF THE AID

2.1. The beneficiary

(2) The aid recipient is Vauxhall Motors Ltd, Ellesmere Port, UK (“Vauxhall”), a car manufacturing plant
which is an operating unit of Vauxhall Motors Ltd and part of General Motors Inc.
It
manufactures cars from the Opel model range (which are sold in the UK under the Vauxhall badge),
currently the Astra which will terminate in 2009. Vauxhall is located in Ellesmere Port in Cheshire in
the North-West region of England (1) and employs close to 2 200 workers.

(“GM”).

(3) Vauxhall has suffered from a long record of underperformance. Initiatives taken since 2002 have
considerably improved the plant's performance. However, according to the UK, the improvements
represent only the changes needed to meet the basic standards for a GM plant. In order to survive in
the long term, Vauxhall needs to implement a more comprehensive change and staff development
programme in order to improve productivity and build quality and make Vauxhall a class leading
plant.

(4) On 17 April 2007, GM announced that Vauxhall was amongst the European GM sites that had been

selected to produce the Global Compact Vehicle, the model that will replace the Astra.

2.2. The training programme

(5) Vauxhall

intends to implement a wide-ranging training plan which breaks down into 8 individual

training areas, 6 of which are considered by the UK to be eligible for training aid:

(a) Production System Training: This concerns training in all elements of Vauxhall's production and
quality control systems. The objective is to give staff a better understanding of the build process
and thus generate better standard, reduce defects and improve problem solving.

(b) Integrated Training Plan: This part of the training concerns the implementation of the “Global
Manufacturing System” (GMS) which incorporates best practices and technologies into a common
manufacturing system for GM operations. Through a series of objectives (“People Involvement”,
“Standardisation”, “Built-in Quality”, “Short Lead Time”, “Continuous Improvement”) the training
will allow the staff of Vauxhall to build future generations of cars in a better way.

(c) Cultural Change: The objective of this training is to instil a sense of common purpose and collec-
tive responsibility in the workforce and to create a team culture based on excellence in production.

(1) Vauxhall is located in an area which until 31 December 2006 qualified for regional aid under Article 87(3)(c) of the

EC Treaty. Since 1 January 2007, the region is an unassisted area.

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(d) Dual Skilling: The purpose of this training is to develop a flexible workforce by allowing staff with
a primary skill in mechanical engineering to develop electrical skills and, conversely, those with
primary skills in electrical engineering to acquire mechanical skills.

(e) Lean Manufacturing: This is a project to ensure that the principles and techniques of lean manufac-
turing are embedded in the workforce and that employees are fully aware of the benefits of
applying these to the manufacturing process at Vauxhall. A central part of training under this
heading will be the secondment of staff to another GM plant outside the UK.

(f) Undergraduates: This is a programme whereby Vauxhall organises 12-month courses for young
University students. The various programmes (e.g. “Body Planning Engineer”, “Finance Analyst”,
“General Assembly Planning Engineer”) combine learning and work experience under the supervi-
sion of a mentor. There is no contractual obligation on either party to maintain the working rela-
tionship at the end of the training.

(6) Outside the training intended to benefit from the notified State aid are the training areas “Apprentices”
(an apprenticeship scheme for young people), “Model Change” (the training needed to adapt to the
production of the Global Model Vehicle) and activities related to “Training & Performance Appraisal”.
In addition, the UK authorities have informed the Commission that Vauxhall undertakes “routine
training” in the skills necessary to the plant's normal operations.

(7) According to the information provided by the UK, the training would consist mainly in general
training, with some elements of specific training (2). The training plan will be implemented over
six years (2007 to 2012 included) and will concern all employees at Vauxhall.

2.3. The aid

(8) The aid would be given in the form of a direct grant of GBP 8 584 767 payable in six yearly instal-
ments over the running time of the training programme. The aid would be implemented as an indivi-
dual aid from the North West Development Agency.

(9) According to the information provided by the UK, the eligible costs for the training and the aid break
down as follows (the costs for the projects “Apprenticeships”, “Model Change” and “Routine Training
Budget” are not considered eligible by the UK) (3) (*):

Projects

General
training
Eligible costs
in GBP

Specific
training
Eligible costs
in GBP

Wage
compensation
in GBP

Total eligible
costs in GBP

Aid in GBP

Intensity in %

Product System
Training

Integrated Training
Progr.

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

Cultural Change

Dual Skilling

[…]

[…]

Lean Manufacturing

[…]

Undergraduates

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

TOTAL

9 870 316

464 808

6 248 338

16 583 461

8 584 767

51,78

(2) The notions of general and specific training are used as defined in Commission Regulation (EC) No 68/2001 of 12 January
2001 on the application of Articles 87 and 88 of the EC Treaty to training aid (OJ L 10, 13.1.2001, p. 20), referred to in
this decision as “the Training Aid Regulation”.

(3) These amounts in the table are those indicated in the UK's letter of 22 May 2007. However, the Commission notes a discre-
pancy as regards the figures provided in the notification, at least as concerns the eligible costs for the Integrated Training
Programme. The Commission expects the UK authorities to clarify this issue and provide definitive amounts for the eligible
costs and the aid.

(*) […]: Confidential information.

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Projects

General
training
Eligible costs
in GBP

Specific
training
Eligible costs
in GBP

Wage
compensation
in GBP

Total eligible
costs in GBP

Aid in GBP

Intensity in %

Apprenticeships

Model Changes

Routine Training
Budge

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(10) According to the UK, the planned aid amounts respect the aid intensities of the Training Aid Regu-
lation, i.e. 50 % for general training and 25 % for specific training, with an increase of 3,7 percentage
points for training to disadvantaged workers within the meaning of Article 2(g) of the Training Aid
Regulation (4).

3. ASSESSMENT

3.1. Qualification as State aid

(11) According to Article 87 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, in so far as it affects trade between Member
States, constitutes incompatible State aid unless it can be justified under Article 87(2) or (3) of the
EC Treaty.

(12) The Commission considers that the measure constitutes State aid within the meaning of Article 87(1)
of the EC Treaty. The funding takes the form of a grant from the general budget of the North West
region, and is thus funded from State resources. The measures are selective as they are limited to
Vauxhall. They are likely to distort competition within the Community since, by relieving it of a signifi-
cant part of the costs of the training, the measure will provide Vauxhall with an advantage over other
competitors not receiving the aid. Finally, the market for motor vehicles is characterised by extensive
trade between Member States.

3.2. Legal basis for the assessment

(13) The UK authorities have notified the aid as individual aid under Article 5 of the Training Aid Regu-
lation which provides that when the amount of aid granted to one enterprise for a single training
project exceeds EUR 1 million,
the aid is not exempted from the notification requirement of
Article 88(3) EC Treaty. The Commission notes that the proposed aid in this case amounts to
GBP 8 584 767, i.e. about EUR 13 million, to be paid to one enterprise, and that the training project
is a single project. The Commission therefore considers that the notification requirement applies to the
proposed aid, and that it has been respected by the UK.

(14) When assessing an individual training aid which does not qualify for the exemption laid down in the
Training Aid Regulation, the Commission will, in line with previous decisions (5) make an individual
assessment of the aid on the basis of Article 87(3)(c) of the EC Treaty. However, for the purposes of
this individual assessment the Commission will by analogy rely on the guiding principles of the
Training Aid Regulation and in particular the exemption criteria laid down in its Article 4.

(15) Moreover, the Commission will, in line with its established practice, assess whether the training aid
measure is necessary to undertake the training in question. The necessity of the aid is a general
condition for finding the aid compatible with the common market (6). If the aid does not lead to addi-
tional training, it cannot be considered to “promote” the economic development within the meaning of
Article 87(3)(c) EC of the EC Treaty nor to correct the market imperfections that lead companies to
underinvest in the training, as mentioned in recital 10 of the Training Aid Regulation.

(4) At present, 37 % of workers of the company are considered to be disadvantaged. They fall mainly into the category of
persons older than 45 who have not attained an upper secondary education. However, as the training will run over 6 years
and as the exact number of disadvantaged workers benefiting from the training will be known only at the time the training
is delivered, the UK authorities intend to apply a general increase of aid intensity of 3,7 % across the board. The UK authori-
ties have committed to verifying the actual number of disadvantaged workers in each training project ex post and to
correct the applied aid intensities accordingly.

(5) See Commission Decision 2006/938/EC of 4 July 2006 on State aid C 40/2005 … Ford Genk (OJ C 366, 21.12.2006,
p. 32) and Commission Decision of 4 April 2007 on State aid C 14/06 … General Motors Belgium, not yet published. This
follows also from paragraph 16 of the preamble of the Training Aid Regulation.

(6) This is reiterated in point 11 of the Regulation which clarifies that it must be “ensure[d] that State aid is limited to the minimum

necessary to obtain the Community objective which market forces alone would not make possible […]”.

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3.3. Compatibility with the common market

(16) In view of the information submitted by the UK, the Commission has doubts on the compatibility of

the aid with the common market for the reasons indicated below.

3.3.1. Incentive effect of the aid

(17) As indicated above, the Commission takes the view that training aid can be compatible with the
common market only if it creates a necessary incentive for the funded training, in the absence of
which the training would not take place. Training which is part of the normal operations of an under-
taking and for which market forces alone should provide sufficient incentive will not qualify for
training aid.

(18) The UK has indicated that all training which is necessary for Vauxhall's normal operations is provided
as part of “routine training”, the cost of which is not included in the eligible costs of the notified aid
(the same is claimed for the training necessary to adapt to the production of the Global Concept
Vehicle, covered by the heading “Model Change”).

(19) According to the UK, the training covered by the notification is significantly in excess of the work
required to maintain its current business and would, because of it prohibitive cost, not be undertaken
by Vauxhall without the aid. The aid would thus be a necessary condition for the training.

(20) The Commission nevertheless doubts the incentive effect of

the aid on parts of

the training

programme:

Production System Training

(21) In the Commission's view, this training appears to be necessary to ensure Vauxhall's normal operations.

This should provide Vauxhall with sufficient incentive to undertake the training without aid.

(22) The UK has indicated that the training in production systems which is indispensable to Vauxhall's
operations is provided through “routine training” which is distinct from the Production System
Training. However, the UK has not provided sufficient information to allow the Commission to verify
the contents of the “routine training” and to compare it to the Production System Training to satisfy
itself that the latter provides additional qualifications.

(23) The Commission consequently doubts that the aid is necessary for Vauxhall to undertake the Produc-

tion System Training.

(24) Concerning a particular item of the Production System Training, namely lines A25.1.1 to A25.1.6
“Statutory Inspection Training”, the Commission observes that any training which is required by statute
will necessarily be undertaken even in the absence of State aid. The Commission would require specific
explanations regarding this point.

Integrated Training Plan

(25) The Commission understands that GMS is an integrated manufacturing system which has been devel-
oped by GM and which is common to all GM car manufacturing facilities. Training the workforce in
GMS would therefore appear indispensable to Vauxhall's normal operations and should be undertaken
even in the absence of the notified State aid.

(26) The UK has indicated that GMS training has been undertaken at Vauxhall before, but that the Integrated
Training Plan aims at the refreshment and extension of the skills initially learnt and that this expendi-
ture is discretionary and would not be brought about by the simple operation of market forces.

(27) However, the Commission considers that training in the manufacturing systems applied at Vauxhall,
including appropriate refreshment courses, are essential to operations. The Commission considers that
the UK authorities have failed to provide concrete information to substantiate the claim that the
Integrated Training Plan goes beyond what it is necessary for Vauxhall's normal operations and would
not be undertaken in the absence of the aid. The Commission consequently doubts that the notified
aid, in this respect, is compatible with the common market.

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Undergraduates

(28) The UK has indicated that the programme is nonessential to Vauxhall's operations and could be
curtailed without business unduly suffering. The costs of the training cannot be considered part of
operating costs. Expenditure on the Undergraduate programme is discretionary and up for review
every year. It is liable to budget cuts. The State aid would guarantee its continuation.

(29) At this stage, the Commission observes that the Undergraduate programme has been in place for a
number of years without State aid, which would indicate that the aid is not necessary for this training.
The UK, which has stated that the Undergraduate training brings new talent into the company and is a
key element of the training to be undertaken by Vauxhall, has not provided any concrete evidence that
the programme will be discontinued in the absence of aid. The Commission is consequently not satis-
fied that the aid is compatible with the common market in this respect.

3.3.2. The distinction between general and specific training

(30) The notions of general and specific training are defined in Article 2(e) of the Training Aid Regulation.
Specific training is directly and principally applicable to the employee's present or future position in
the assisted undertaking and provides qualifications which are not or only to a limited extent transfer-
able to other firms or fields of work. General training, on the other hand, provides qualifications which
are transferable to other firms or fields of work and therefore substantially improve the employability
of the employee. The essential distinction between the two forms of training is thus the transferability
of the acquired skills.

(31) For the different parts of the Vauxhall training programme the UK authorities have indicated whether
they consider the training to be general or specific (and, consequently, which maximum aid intensity
should apply in accordance with Article 4 of the Training Aid Regulation). The Commission neverthe-
less questions the UK's qualifications as regards the following training projects:

Production System Training

(32) As indicated above, this training concerns all manufacturing and quality control systems at Vauxhall.
The UK has indicated that all training will be given by external trainers and concerns third party equip-
ment which is used in other undertakings and sectors, thus providing trainees with transferable qualifi-
cations.

(33) The Commission nevertheless considers that the UK has not provided it with sufficient information to
allow it to ensure that all training provided under this heading is indeed transferable. The UK would
need to provide the Commission with details on the basic “routine” training at Vauxhall so that the
Commission can compare the nature of this training and assess to which extent it concerns skills
which are specific to Vauxhall or GM.

Integrated Production System

(34) As indicated above, this is, to the Commission's understanding, training in the Global Manufacturing

System which was developed by GM and is applied at GM facilities.

(35) The UK argues that GMS is based on a set of principles applicable to any business situation which
involves a regular process. The underlying principles are applied both within and outside the automo-
tive sector. The employees would thus acquire a set of skills which will make them capable of
performing more efficiently with any employer. In addition, some specific elements of training have
been identified and notified as specific training.

(36) The Commission nevertheless questions whether training into a proprietary manufacturing system can
be considered to provide transferable qualifications. Although certain underlying notions may be
widely shared, the Commission considers that the training, insofar as it concerns the application of
these notions to a concrete production process, is likely to be specific. The Commission would there-
fore require more detailed information on this training and how closely linked it is to practical applica-
tions in the GM manufacturing process.

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Cultural Change

(37) The Commission notes that the UK authorities have not submitted any details on the content and
expected output of the training under this heading as, on their own account, this information is not
yet available. In spite of this, the UK authorities claim that all training provided under this heading is
general training within the meaning of the Training Aid Regulation.

(38) However, the Commission has doubts about the transferability of skills acquired as part of a “cultural
change” which — in the words of the UK authorities — is specifically focused on “jointly improving
the key production metrics of the plant relating to cost and quality”. In view of this objective and the
notification's statements that “individual cultures widely vary between different organisations” and that
“there is no optimal culture which can be easily and quickly adopted” the Commission doubts that this
part of the training programme provides skills which are transferable by individual employees to other
firms or fields of work. The Commission consequently doubts that training fitting the description
given by the UK authorities constitutes general training.

Lean Manufactur ing

(39) The UK has argued that the principles of lean manufacturing are generally applied across the manufac-
turing industry and that, once acquired by the trainee, provide qualifications which are widely transfer-
able.

(40) Although the notion of lean manufacturing may rest on a body of generally applicable principles and
techniques, the Commission nevertheless doubts whether this training can be dissociated from its prac-
tical application at Vauxhall or within the GM group at large, and thus whether the qualifications it
provides are largely transferable by individual employees to other firms or fields of work. The
Commission consequently doubts that this constitutes general training (7).

4. CONCLUSION

In the light of the foregoing considerations, the Commission, acting under the procedure laid down in
Article 88(2) of the EC Treaty, 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.

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.

The Commission warns the United Kingdom that it will inform interested parties by publishing this letter
and a meaningful summary of it in the Official Journal of the European Union. It will also inform the EFTA
Surveillance Authority by sending a copy of this letter. All such interested parties will be invited to submit
their comments within one month of the date of such publication.’

(7) The Commission points out that in the above-mentioned decision in Ford Genk, training on “Lean organisation” was

considered to be specific training.