EU support to fight the crisis in the automotive sector

25 February 2009
by eub2 -- last modified 25 February 2009

The European automotive sector, with 12 million jobs depending on this strategic industry, has been hit particularly hard by the current economic crisis with new registrations down by 20 per cent and gloomy expectations for 2009. Due to its close links to other sectors and the wide spread of supply industry and vehicle trade, the negative economic effects reaches out to millions of employees in all EU Member States. In today's communication, the European Commission defends a proactive stance to support industry in their efforts to withstand the crisis, soften negative effects and ensure long-term competitiveness. Building on the European Economic Recovery Plan of 2008, it sets various measures to improve access to credit, to clarify the rules for granting state aid in the particular circumstances, to boost the demand for new vehicles through coordinated national action, to minimise social costs and retain the skilled workforce and to defend fair competition in open markets. The Commission suggests a new partnership with industry, trade unions and EU Member States in the context of the CARS 21 process to accompany the common crisis response.

Primary responsibility for dealing with the crisis lies with industry, says the Commission. However, the European Economic Recovery Plan of November 2008, has set out key elements of the public support relevant for the automotive sector.

In order to ensure transparency and a rapid adoption of national schemes the Commission has organised the exchange of best practises and proposed common principles on which car scrapping schemes should be based.

The new Temporary Framework for State aid measures adopted in December 2008 and revised in February 2009 is designed to allow Member States to provide aid to companies facing problems with access to liquidity and whose difficulties do not pre-date the crisis. Aid measures also include cost-based loans for the production of green products.

Much of this public support should be covered by horizontal policy instruments applicable to industry as a whole and should be met through a combination of European and Member State level action. The EIB is expected to approve €3.8 billion worth of automotive sector projects in March while additional projects in the pipeline add up to a total of € 6.8 billion.

It should be noted that the financial branches of car makers may also qualify for aid under the schemes adopted by the Commission for the banking sector.

Targeted and temporary public sector support at EU and Member State level can help to complement industry’s efforts to withstand the crisis and cushion the blow to people whose jobs might be affected. Apart from cars 21 the Commission has already launched the "European Partnership for the anticipation of change in the automotive sector in October 2007. This partnership offers a platform to anticipate and mitigate the social impact of restructuring. Moreover the Commission invites Member States to make full use of the flexibilities offered:

• Various EU funds and policy instruments can be mobilised to support the social cost of adjustment and ensure that necessary skill levels required for the future competitiveness of industry are retained in the industry.
• An increase of advance payments for the European Social Fund (ESF), and simplification of the criteria, can be used to combat unemployment, such as supporting short-time workers by financing training and a part of wage and non-wage labour costs.
• Possibilities to benefit from interventions financed by the European Globalisation Adjustment Fund (EGF) should also be explored. Up to now, the EGF has already intervened in four automotive sector cases with a fifth in the pipeline.

The situation is aggravated by the rising risk of protectionism or a revival of nationalism. Protectionism is making it harder for European producers to access third country markets. The first cases of this can to be seen in third countries, e.g. in form of new import licensing requirements or rising import duties. The EU is therefore committed to avoiding any new trade restrictions being created towards third countries and expects the same attitude from its trading partners.

Strengthened partnership with the CARS 21 process

The Commission suggests strengthening the CARS 21 process, which was started in 2005, with a round table involving Member States, automotive industry and trade unions to provide a platform of mutual information, dialogue and best practices.

Automotive Industry - Competitiveness

Source: European Commission