Abstract
We provide a quantification of public support for the European car industry during the past decade. First, we identify the most relevant instruments of state aid and non-state aid public support. Second, we aim to estimate the amount of public support for European car manufacturers for each instrument and investigate its dynamics. Three factors complicate the overall quantification of public support for each instrument: (i) the Commission does not scrutinize, and hence does not quantify all public support measures; (ii) the available information depends on whether the state aid is granted to individual companies, or in the form of general schemes; and (iii) the available information depends on whether the aid is granted in the form of a grant, soft loan or guarantee. Our lower bound estimate of state aid suggests that the aid declined over the pre-crisis period, but peaked at €1.2 billion as a response to the last financial and economic crisis in 2009. Perhaps even more strikingly, this state aid was combined with an unprecedented amount of other public support: scrapping schemes of at least €4.0 billion, and loans from the European Investment Bank of €2.8 billion, or an equivalent of €400 million of “aid element” .
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Notes
In particular, following the last financial and economic crisis, only four assembly plants have been closed in Europe: GM Antwerp (Belgium, 2010), Fiat Termini Imerese (Italy, 2011), Saab Trollhaettan (Sweden, 2011), and Mitsubishi Born (Netherlands, 2012).
We focus on public support directly granted to the car manufacturers, and exclude support to the upstream suppliers, the downstream distribution sector, the connected financial sector and other ancillary services.
Consolidated Version of the Treaty on the Functioning of the European Union art. 107, 2010 O.J. C 83/91.
Soft law provisions are rules of conduct that are not legally binding, but which may have practical effects, for example in the court decisions (Cini 2000).
State Aid Action Plan Less and better targeted state aid: a roadmap for state aid reform 2005–2009 Consultation document, 2005 COM (2005)107.
We use the following three terms throughout the paper: (i) public support (or support) to denote all possible instruments of public support (which entails and does not entail state aid), (ii) state aid support (or state aid) to denote the public support that entails state aid and is subject to the formal scrutiny by the European Commission, and (iii) non-state aid support to denote the public support that does not entail state aid and is not subject to the formal scrutiny by the European Commission.
We do not consider environmental aid granted under the Community Guidelines on State Aid for Environmental Protection (2008 O.J. C 82/1) as an instrument of public support explicitly in our analysis since we have not found any individual aid case in the state aid register of the European Commission related to the car sector. We identified one scheme directly related to the car industry (Commission Decision State aid No. NN 56/2005 - United Kingdom Low Carbon Research and Development Programme, 2006 O.J. C 002) that the Commission had assessed based on the R&D&I Framework.
In particular, the EGF funds go directly to the employees and do not entail state aid since they do not provide an advantage to undertakings.
Community Framework for State aid to the motor vehicle industry, 1989 O.J. C 123.
Community Framework for State aid to the motor vehicle industry, 1997 O.J. C 279.
Multisectoral framework on regional aid for large investment projects, 2002 O.J. C 70/8.
Guidelines on national regional aid for 2007-2013, 2007 O.J. C 54/08.
See Scoreboard - Conceptual and methodological remarks: http://ec.europa.eu/competition/state_aid/studies_reports/conceptual_remarks.html
For regional aid: http://ec.europa.eu/competition/state_aid/register/msf_2014.pdf. For R&D&I projects: http://ec.europa.eu/competition/state_aid/register/transparency_table_2011.pdf
See for instance Commission Staff Working Document - Facts and Figures on State aid in the Member States - Accompanying the Report from the Commission State Aid Scoreboard - Autumn 2010 Update (COM(2010) 701 final).
See Scoreboard - Conceptual and methodological remarks at http://ec.europa.eu/ competition/state_aid/studies_reports/conceptual_remarks.html
Commission Notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees, 2008 O.J. C 155/10.
We consider nine countries in our analysis, but in the tables we refer only to the countries for which we find decisions in the state aid register of the Commission, or information reported under the “Transparency system” of the Commission, or information on other types of public support from various sources discussed below. If a country does not appear in the table, then no relevant public support was awarded to that country during the years of our sample.
Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 107 and 108 (ex Article 87 and 88) of the TFEU (General block exemption Regulation), 2008 O.J. L 214/3.
Guidelines on national regional aid for 2007-2013, 2007 O.J. C 54/08. For the period 2000-2006 the applicable guidelines are the Guidelines on national regional aid, 1998 O.J. C 74/06.
The “Transparency system” database is related to large investment projects granted under a scheme for which the individual notification is not required. Member states need to provide the information on these projects to the Commission under point 65 of the Regional aid Guidelines and under article 9(4) of the GBER. This database has been available since 2003.
The regional aid amounts published in the state aid register are usually expressed as gross grant equivalent in present value. Whenever the information is available only in nominal value, we transform those nominal values into present values using the average discount rate calculated on the basis of the other regional aid cases.
The regional aid amounts published under the “Transparency system” are expressed as discounted net (after taxation) grant equivalent before 2007 and as discounted gross (before taxation) grant equivalent after 2007. To convert those aid amounts from net to gross values, we assume that only corporate tax is paid on the aid granted, and use the average corporate tax for each country for our transformations. We also assume that the aid is fully subject to taxation in the year it is authorized.
Communication from the Commission - Criteria for the analysis of the compatibility of State aid for training subject to individual notification, 2009 O.J. C 188/01. For the period 2001-2008, Commission Regulation 68/2001/EC on the application of Articles 87 and 88 of the EC Treaty to training aid, 2001 O.J. L 10/20, the so called “Training Block Exemption Regulation (BER)” is applicable. This “Training BER” has been included into 2008 GBER.
Community Framework for State aid for Research and Development and Innovation, 2006 O.J. C 323/01. For the period 2000-2006 the Community Framework for State Aid for Research and Development, 1996 O.J. C 45/06 is applicable.
The “Transparency system” is related to R&D&I investment projects over €3 million, which are granted on the basis of existing aid schemes. Member states are required to provide the information on these projects to the Commission under article 10.1.3 of the R&D&I Framework. This information has been published since 2007.
Commission Decision State aid No. N 54/2008 - R&D&I aid to the car manufacturing sector in the Community de Madrid, 2008 O.J. C 264/2008.
Community guidelines on State aid for rescuing and restructuring firms in difficulty, 2004 O.J. 244/02.
The Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis (hereinafter Temporary Framework) was adopted at the end of 2008 to address the consequences on the real economy of the global financial crisis that began in the summer of 2008 on the basis of paragraph (b) of article 107(3) of the TFEU. The Framework was preceded by the European Economic Recovery Plan in November 2008, which was already proposing a simplification package to allow state aid through horizontal schemes (Communication from the Commission - Temporary Community framework for State aid measures to support access to finance in the current financial and economic crisis, 2009 O.J. C 16/01). Given the exceptionality of the measures, the Framework was limited in time and was to expire at the end of 2010, but was prolonged until the end of 2011, subject to stricter conditions, in order to gradually phase-out the crisis support (Communication of the Commission - Temporary Union framework for State aid measures to support access to finance in the current financial and economic crisis, 2011 O.J. C 6/05.).
Source: fair value corporate corporate curve (Industrial) by Bloomberg.
The Comprehensive Plan Automotive has been approved within the set of policies approved under the Spanish Plan to Stimulate the Economy and Employment (www.sepe.es/).
The state aid register contains decisions on the general schemes notified by member states to the Commission under the Temporary Framework and two cases of ad hoc state aid to car producers in Sweden. To collect information on individual aid granted under those approved schemes, we rely on the studies of the European Commission related to the application of the Temporary Framework (European Commission 2009, 2010, 2011) and on the responses of member states to the questionnaire of the Commission on the application of the Temporary Framework (http://ec.europa.eu/competition/consultations/2010_temporary_framework/index.html).
The European Investment Bank (EIB) is the European Union’s long-term lending institution owned by the member states. The Bank uses its AAA credit rating to fund itself on the capital markets and finance its lending activities.
Communication from the Commission - “Responding to the crisis in the European automotive industry” COM/2009/0104 final (hereinafter Car Communication).
Regulation (EC) No. 546/2009 of the European Parliament and of the Council of 18 June 2009 amending Regulation (EC) No. 1927/2006 on establishing the European Globalisation Adjustment Fund, 2009 O.J. L 167/26.
Reports from Germany and the United Kingdom provide complete information on scrapping programs to assess the amount of public support granted to individual car producers. For France the information on scrapping schemes is fragmented, so the discussion will be more limited. Other countries such as Italy, the Netherlands, Portugal, and Spain have approved the scrapping schemes as a response to the financial and economic crisis as well. In some countries scrapping schemes were in effect before the crisis (for instance in Italy, Portugal, Spain). Since there is no detailed information on those schemes, especially across car producers, we have to exclude those countries from the detailed analysis of scrapping programs.
Because the reporting criteria adopted by the register of the Transparency system are different (as explained in the Appendix) and the register of the Transparency system is available only since 2003, we do not include these amounts in the overall quantification of the aid amounts. At the same time, we carefully checked that the aid reported in the register of the Transparency system is related to different cases with respect to the amounts authorized in the individual state aid decision. We notice that aid granted under the Transparency system sums up to 846 million over the 11 years and 9 countries in consideration, which is not too far from the total overall 1,314 million of state aid granted under the Regional Guidelines.
Scoreboard - Conceptual and methodological remarks: http://ec.europa.eu/competition/ state_aid/studies_reports/conceptual_remarks.html
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Appendix:: Quantification assumptions
Appendix:: Quantification assumptions
For the quantification of state aid support to the European car industry, we adopt the following set of assumptions to recover the aid element.
Assumption 1
We treat ad hoc aid and schemes in different ways. We cover all cases of ad hoc aid (granted with different instruments and forms) because the aid element is consistently estimated. In contrast, we treat schemes separately and we cover them in our quantification in three instances: (i) when there is an individual application of state aid under the approved scheme and the respective state aid decision is published in the register of the Commission under the denomination of “individual application” , (ii) when the aid amounts, granted under the approved schemes, are published under the “Transparency system” of the Commission, and (iii) when the aid amounts can be followed from the Commission’s reports published ex post (especially in relation to the aid granted under the schemes of the Temporary Framework). In all other circumstances schemes are not covered in the quantification.
Assumption 2
We report the planned and actual aid amounts separately. The planned amounts are based on the state aid decisions reported in the register of the Commission. The actual amounts are published under the “Transparency system” or in the reports of the Commission.
Assumption 3
If the information on the aid element in the case of subsidized loans or subsidized state guarantees is not available, we follow the practice of the Commission in this respect when the aid element is not provided by a member state in its annual report on aid expenditure to the Commission: (i) in case of soft loans, we take 15 % of the total amount of the loan as a proxy for the aid element, (ii) in case of subsidized state guarantees, we estimate the aid element to be 10 % of the nominal value guaranteed.Footnote 47
If the soft loan was not repaid, we take the aid element to be equal to the amount of that loan (e.g. in the case of rescue aid to MG Rover in 2005).
Assumption 4
State aid can be granted for a project with multiple objectives (e.g. aid to finance regional investment and aid to finance training). In some cases the aid decision contains separate information on the amount of state aid granted for each objective. In other cases, when the information is not available, we refer the aid amount to the aid instrument based on the primary horizontal legislation under which the aid compatibility is assessed (e.g. regional aid if the primary legislative text used to assess the aid compatibility are Regional aid Guidelines, or training aid if the primary legislative text to assess the aid compatibility is the Training aid Communication).
Assumption 5
In cases where a state aid decision takes up several years, we attribute the aid to the year of the Commission’s final decision.
Assumption 6
When the aid is paid in installments, the Commission requires that data on the aid amounts are presented in the net present value at the moment when the aid was granted and calculated before any deduction of tax or other charge. We also express the aid amounts as gross grant equivalent in present value.
For the schemes approved under the Temporary Framework, the aid amounts are not notified individually, so there is no economic assessment by the Commission. The information on the actual aid granted under the Framework can only be followed from the reports of the Commission published ex post. Such reports usually state the amounts in nominal value. If the public authorities transfer the aid amount to the bank account of the beneficiary on the first day following the decision of the Commission, the nominal amount is identical to the net present value. Since in cases of individual aids granted under the Framework the Commission did not publish any decision and all the loans were granted at once, we assume that the nominal and net present values of such aid are equal.
With regard to non-state aid support, we state the total amount of public support that has been granted. In the case of EIB loans, we report the nominal amounts of loans signed by the Bank. In cases of social public support, we report the nominal amount of the support approved by the respective social funds, i.e. either the ESF or the EGF. In cases of scrapping schemes, we report the total amount of government budget for scrapping incentives.
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Grigolon, L., Leheyda, N. & Verboven, F. Public Support to the European Car Industry: The Impact of the Financial Crisis. J Ind Compet Trade 15, 283–321 (2015). https://doi.org/10.1007/s10842-014-0185-1
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DOI: https://doi.org/10.1007/s10842-014-0185-1