Abstract
This article investigates how the general principles of the Treaty have been applied to the car sector in the EU, where the soft law provisions are of particular interest. A detailed quantitative analysis from 1990 to 2008 highlights a reduction of aid over time. A shift from sectoral to “regional development” motives in granting aid to the sector is also observed in the last 10 years. However, sector specific aid is now less explicit but it remains important. Large amounts of public money are spent without a consistent strategy, reducing capacity in some cases, expanding it in others. The scarcity of public funds calls for a more focussed European policy for this industry.
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Notes
For discussion of the legal instruments available to the European Commission in regulating and controlling state aids, see Cini and McGowan (2008: ch.8).
The sector is subject to a large and varied corpus of regulations. According to the European Automobile Manufacturers’ Association (ACEA), the automotive industry has to comply to more than 80 EU Directives and 115 international framework agreements. These standards have become stricter and stricter over time. Even in competition policy, the car sector is given special attention in the field of vertical restraints (see the block exemption regulation, BER 1400/2002) because producers’ concentration is such, that the concern for competition is particularly acute.
For a detailed survey on the governments-industry relations in the automobile sector at national and EU level since 1945, see McLaughlin and Maloney (1999).
This includes the Nace Rev. 2 sector 29, denominated “Manufacture of motor vehicles, trailers and semi-trailers”, which include also bodies, parts and accessories, electrical and electronic equipment for motor vehicles and so on. The only major components which is not considered in this sector is tyres production.
The definition includes both employed and unemployed.
Many of these companies entered the EU market to circumvent quotas on car imports, which were in place in the 1993–2000 period for Japanese cars, as well as other restrictions (e.g., voluntary export restraints).
About 34 % of employees in the European car industry (EU 27) are employed in Germany. Data from Eurostat, latest available year is 2009.
Bulgaria, Cyprus, Denmark, Greece, Ireland, Latvia, Lithuania, Luxembourg and Malta do not host production car plants (see www.acea.be).
According to ACEA, about 5,900 new patents per year can be ascribed to the sector. Unfortunately no official statistics exist to substantiate such claim.
The US attitude towards its three “giants” is not very different. See Luger (2000) for car producers-government relations in the US.
An analogous evolution is marked by the “Multisectoral framework on regional aid for large investment projects” which was adopted shortly after (December 1997) and reviewed in 2002. The coexistence of the multisectoral with the sector-specific framework raises some questions, especially since given the size of car manufacturers investment projects are likely to fall within the scope of “large investment”.
Subsidies are often given over a set time period, and in recent years the discounted value is sometimes reported in the decision. Until the end of the 1990s, typically only the nominal amount appears, and the time period is often not reported, thus preventing computation of the discounted value.
Where the value is not reported, we have computed it on the basis of the spread between the required interest rate (which could be nil) and the interest rate of the ECB for its main financing operations, as reported monthly in the Official Journal.
In some cases, aid is earmarked to specific sectors, including the car industry, but the list of sectors is very long. These cases are not considered by our analysis.
The lack of comparable data on aid makes it impossible to go beyond 2008.
See Commission Press Release IP/05/64 of 19/01/2005.
Conditions of this kind are often imposed. The idea is that firms should not take undue advantage of these subsidies at the expense of their rivals. The most immediate effect of such a cap is to limit the positive effects on consumers. However, the rationale for this safeguard for rivals of the beneficiary is the avoidance of subsidy races.
Data from the International Organization of Motor Vehicle Manufacturers (www.oica.net). As in other segments of industry, however, former “emerging” economies have become significant in recent years. China produces around 13 % of the global supply of motor vehicles, and Brazil and India 4 % and 3 % respectively. Interestingly, in terms of the production of cars only, the US share of world production drops to 7.2 %, which is lower than China’s 13 %.
Notice that the US industry basically consists of three giants: Chrysler, Ford and GM.
For a discussion of the US antitrust state action doctrine, see Martin and Valbonesi (2006, Section 5).
See Luger (1999, p. 98–108). The author discusses the bailout along with the relevance of Chrysler’s size in the economy, the firm’s political influence and lobbying activities.
Article I, Section 8, Clause 3.
On these considerable shifts of production and assembly plants, see Klier and Rubenstein (2008).
A relevant consequence is that—to the best of our knowledge—no reliable information on the amounts spent by the different states seems to exist.
Ford received 7.7 M€ in 2001 for training and further 45.1 M€ in 2003 for regional aid (renewal of a plant). At the end of 2003, Ford cut employment by 3,000. In 2006 and twice in 2008, Ford received training aid for 6.2 M€, 1 M€ and 0.8 M€. Volvo received aid for training for 6.5 M€ in 2003 and 3.5 M€ in 2008.
The same applies to member countries that do not have established national producers (e.g. new member states such as Romania and Poland) or which no longer have them (e.g. the United Kingdom).
The assessment of state aid control (i.e. how much distortion in the market is induced by the aid) is by itself an issue. Friederiszick et al. (2008) discuss an effects-based approach—essentially based on a general balancing test—to distinguish “good” from “bad” aid, but many features of the test still remain to be defined and its implementation seems to be cautiously case-by-case.
In the new member states, which host a significant number of “objective 3 regions”, a recent wave of aids benefitted firms, such as Daewoo, Hyunday, Ford and Mercedes Benz, which compete and sell their cars mostly in markets other than those where their plants are located.
For Ford Bridgend see case C7/02 (ex N 577/01), withdrawn in August 2002¸The Daimler Berlin file is C64/02 (decision on 28/3/03).
It may be that an expansion of capacity will lead to a decrease in prices, and is thus in the interest of consumers, who are the ultimate beneficiaries of competition policy. However, an exhaustive examination of the impact of capacity reduction is beyond the scope of the current analysis.
As Fig. 1 shows, car registrations the EU15 in 2010–2011 are back to the levels of 1996–1997 (about 12,5 million cars).
The “Temporary framework for State aid measures to support access to finance in the current financial and economic crisis” allows more generous short-term measures to boost demand and “smart investment” to yield higher but sustainable growth in the longer term. It has also raised the threshold for de minimis exceptions, made it easier to provide aid for “green” products, and simplified procedures. An underestimated consequence of such exemptions from the duty to notify or to provide details about the implementation of the schemes and their beneficiaries is that the actual amounts of total aid for the years 2009–10 will be possible to calculate only in very aggregate terms.
See the Communication issued by the Commission on 25 February 2009.
Among the main recipients, Renault and Peugeot (3 bn€ each in France), Opel in Germany (1.5 bn €), Ford in Romania (400 M€) and in Germany (200 M€), Saab in Sweden (400 M€) and Volvo (680 M€ in Sweden).
Another major intervention was the 800 M€ given by Spain for grants and soft loans for R&D, environmental projects and training.
Schemes targeted to the car sector (but with less discriminatory features) have also been approved in the UK (N71/2009) and in Germany (N27/2009). Programmes for subsidized interest rates on loans for “green products” (e.g., UK (N72/2009), France (N11/2009) and Spain (N140/2009)) have been designed in such a way that “environmentally friendly” cars are the only green products covered. See http://downloads.bbc.co.uk/news/nol/shared/bsp/hi/pdfs/22_04_09bud09_completereport_2591.pdf
Notice that under this scheme the government has granted loans for 5 years, which in practice were repaid after 2 years, in April 2011.
Grigolon et al. (2012) estimate the aid element as 220 million Euro.
EIB loans were given even before the crisis, but increased considerably in 2009 and 2010 (BMW (26 %), Ford (21 %) and Daimler (12 %) being the largest loan beneficiaries).
The effects of these schemes are usually considered positive, even considering intertemporal substitution effects in demand (Schiraldi 2011). It is interesting to notice that their impact on the environment is instead highly dubious. For instance, Sinn (2009) claims that the energy balance of the German scheme is most likely negative.
See Global Insight (2010) for further details.
Schiraldi (2011) indicates that in the Italian case until 2004 the net effect may well have been positive.
EU dynamics are interesting to compare with the US. See Luger (2000).
In Nicolini et al. (2012) we provide an econometric analysis of the determinants of state aid to the car sector from 1992 to 2008, showing that the Lisbon declaration did not bring about any drastic change in the aid policy.
Fiat in Poland or Ford in Romania are two obvious examples.
This is also true from the perspective of building an integrated market. There seems to be no self enforcing mechanism which may lead to lower subsidies, as countries with greater availability of public money will probably find it optimal to keep spending more.
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Acknowledgements
We would like to thank the editors and the participants to the Workshop “The European Union and state aid: the present crisis and beyond” at CCP, UEA, Norwich for helpful comments and Simone Calzoni for excellent research assistantship.
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Nicolini, M., Scarpa, C. & Valbonesi, P. Aiding Car Producers in the EU: Money in Search of a Strategy. J Ind Compet Trade 13, 67–87 (2013). https://doi.org/10.1007/s10842-012-0146-5
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DOI: https://doi.org/10.1007/s10842-012-0146-5