Audi is having the subsidy it received for expanding the Gyõr plant investigated while BMW is suing the European Commission after only getting a partial subsidy for the i3 and i8 plant upgrade at Leipzig.
IHS Automotive perspective | |
Significance | Audi and BMW have found themselves at the centre of the debate over state aid for car plants as a result of public money being awarded to the former's plant in Gyõr, Hungary and the latter's plant in Leipzig to support production of the i3 electric vehicle (EV). |
Implications | While the Hungarian government's subsidy of the Gyõr plant is coming under investigation by the European Commission, BMW is suing the Commission because it did not get the full allocation of EU subsidy that was originally allotted to the Leipzig plant to support EV production. |
Outlook | These differing situations regarding the use of public subsidies for car plants calls into question the European Commission's role as the arbiters of what is fair in terms of subsidy and what distorts the market. Whenever government money is awarded to a private company to support its business activities there will be conflicting opinions over whether it has been awarded correctly no matter how clear the legal guidelines, and rival businesses and taxpayers' bodies will be liable to challenge the subsidy. |
BMW has launched legal action against the European Commission over the legal arm of the EU only granting part of the state aid that was originally awarded to its Leipzig plant to support production of the BMW i3 at the plant, according to a Deutsche Presse-Agentur (DPA) news agency report. It was originally planned that BMW would be awarded EUR45 million (USD61.3 million) to aid the company's upgrade of its Leipzig plant for production of the i3, however it was eventually awarded EUR17 million. BMW is unhappy about the decision and has decided to challenge it at the European Court of Justice. In a statement BMW said, "The rejection in our view is politically incomprehensible, because the European Commission says it wants to support and to promote the role of vehicles with alternative drive systems." The subsidy was to form to part of BMW's EUR400-million investment in the Leipzig plant in order to prepare it for manufacturing the i3 and i8, with the production of the models generating 800 new jobs at the plant. EU competition commissioner Joaquin Almunia responded by stating, "The commission's objective is to ensure that taxpayers' money is only spent to encourage investments that would not be carried out otherwise, and bring a genuine added value to the region."
At the same time, the Commission announced it was launching an investigation into the Hungarian government's decision to allocate EUR133.3 million of state aid to Audi's project to expand its Gyõr plant. The Hungarian government provided this significant sum as part of the overall EUR1.2-billion investment which went towards turning the Gyõr powertrain and car assembly plant into a full manufacturing facility for the A3 sedan. The plant began operations in June 2013. In a statement the Commission said, "Given the size of the project and the market share of the Volkswagen Group - the owner of Audi - the Commission needs to verify the impact of the project on regional development and whether the aid is necessary to carry out the investment in Gyõr".
Outlook and implications
These two cases highlight the European Commission's role in acting as the ultimate arbiters in deciding what is fair and what is not in terms of allowing subsidies and whether they should be awarded. However, it is somewhat disingenuous to state: "The commission's objective is to ensure that taxpayers' money is only spent to encourage investments that would not be carried out." Any company that is in line to get a subsidy on a plant investment is hardly going to be completely transparent as to what its ultimate investment decision would be if a subsidy is not awarded, and they can hardly be blamed for that. The fact is that the European Commission has no way of definitively knowing if an investment would have been made anyway in a specific location without a subsidy. It is also true that by definition, all subsidies to private businesses distort the market in some way and confer an advantage that may not be available to a rival company.
The European Commission's website states that illegal subsidies may be defined as those that: "'may distort competition by making subsidised goods artificially competitive [cheaper] against non-subsidised goods and thus negatively affecting competitors." It could be argued that any government subsidy to industry could come under this criteria. The fact that the European Commission was also reported to have awarded the Porsche plant in Leipzig EUR43.7 million in support of manufacturing the Macan sport utility vehicle (SUV) would certainly appear to back BMW's case against the full award of the original subsidy to its plant in Leipzig not being granted; especially when one subsidy is supporting the manufacture of a highly profitable luxury SUV and one was meant to be supporting the manufacturing of an environmentally friendly EV featuring cutting-edge technology and innovation. At the very least these cases show the tightrope that the European Commission has to walk in terms of ruling on whether a subsidy is fair and equitable. The Commission also announced that it had closed a formal investigation into regional aid for US carmaker Ford in Spain, after Spanish authorities reduced the aid from EUR24.4 million to EUR11.2 million.