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State aid: Commission endorses €143 million aid to Ford for two large investment projects in Craiova, Romania

The European Commission has authorised, under EC Treaty state aid rules, €143 million of aid, which the Romanian authorities intend to grant to Ford for the production of vehicles and engines in Craiova, in the South West of Romania. The Commission found the measure to be compatible with the requirements of the Regional Aid Guidelines 2007-2013 (see IP/05/1653) and in particular with the rules on large investment projects. Ford's two projects involve investments of €600 million in total. They are expected to significantly increase direct and indirect employment while at the same time stimulating investment by suppliers and a transfer of leading-edge technology, thus benefiting the further development of the region.
Competition Commissioner Neelie Kroes said: “I am pleased to approve aid for these important investment projects which are expected to create more than 40 000 direct and indirect jobs in the region of Craiova."
Ford's investment projects are aimed at the extension, modernisation and fundamental overhaul of two existing plants purchased by Ford to manufacture vehicles and engines respectively. For the first five years, the new engines manufactured at the Ford Craiova plant will almost exclusively be used within the Ford group. The total investment costs taken into consideration for the calculation of the aid amount to €435 million for the vehicle project and to €165 million for the engine project, while the actual aid amounts are €94 million and €49 million respectively.
The project is to be carried out in Dolj County, in the South West region of Romania, eligible for regional aid under Article 87(3)(a) of the EC Treaty as a region with an abnormally low standard of living and high unemployment. The Romanian authorities expect that, based on the standard auto industry calculation parameters, more than 40 000 direct and indirect jobs will be created. Numerous suppliers to vehicle and engine production are expected to invest in facilities in the vicinity of the plants. Moreover, Ford indicated that it would actively encourage technology transfer in the region to develop a substantial local supply base.
The aid is not granted under an existing aid scheme. Moreover, due to the high amounts of aid and investment costs involved, the measure had to be notified to the Commission for individual assessment and clearance.
The Commission’s assessment of regional aid to large investment projects aims to verify whether the market share of the beneficiary and the production capacity created by the investment remain below the thresholds set in the Regional Aid Guidelines. In case the thresholds are not exceeded, the effect of the aid on competition is deemed to be outweighed by its positive contribution to regional development.
The Commission considered several plausible relevant markets from a broad definition involving passenger cars to a very narrow definition involving only multi-purpose subcompact cars. It found that Ford's share would remain below the 25% threshold on all relevant product markets, both before and after the planned investment.
The Commission also verified the capacity increase generated by the project. Its analysis concluded that, in the relevant product segments, where the market was declining compared to the EEA growth rate, the additional production capacity created through the project would remain below 5% of the apparent consumption of the product concerned in the EEA.
The Commission previously assessed the sale of the Automobile Craiova assets to Ford under the state aid rules and adopted a decision on 27 February 2008 (see IP/08/315). The Commission considered the aid linked to the privatisation as unlawful and incompatible and consequently ordered the beneficiary to repay €27 million. The Romanian authorities committed to suspend the payment of the regional aid endorsed in today's decision until the beneficiary reimburses the aid earlier declared incompatible.
The non-confidential version of the decision will be made available under the case number N 767/2007 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.