State aid & the COVID-19 pandemic – Automotive sector

By Anne Federle, Morten Nissen

04-2020

Public safety measures, supply disruptions and the unprecedented dramatic decline in automotive markets as a result of the COVID-19 outbreak have forced OEMs to stop production in numerous Member States.[1] Such decisions will of course have far-reaching direct and indirect effects on businesses all the way down the automotive supply chain across Europe.

The European Commission has recognised the major impact of the COVID-19 pandemic across Europe with its dramatic impact on trade. It has shown its willingness to help EU Member States design State aid schemes and/or individual measures to support companies facing economic difficulties.

New Temporary Framework on State Aid to companies hit by the COVID-19 outbreak

EU Member States may provide support under the general State aid framework to undertakings of the automotive sector affected by the COVID-19 pandemic under the existing de minimis rules (small sums of aid) or the General Block Exemption Regulation (GBER) (aid to projects falling deemed low risk) with no requirement for prior Commission authorisation, and/or, subject to the Commission’s approval, under the Rescue and Restructuring Guidelines, and the general exemption rules in Article 107(3) of the Treaty for the Functioning of the European Union (TFEU). These rules are still in force and can be applied.

However, in direct response to the COVID-19 pandemic and its anticipated economic effects, the Commission has issued a new Temporary Framework[2] under which further State aid measures can be justified.[3] The framework provides guidance to EU Member States on what measures they can expect to be cleared quickly. The Temporary Framework has been expanded once to include more types of aid.

According to the Commission, the COVID-19 pandemic qualifies as an "exceptional occurrence" under EU Law[4] which opens for EU Member States, subject to Commission approval, to compensate companies for the damage suffered by the COVID-19 outbreak.

To remedy serious economic disturbance, the Temporary Framework provides for ten types of aid that can be declared compatible (subject to conditions) under Article 107(3)(b) TFEU if it is granted before 31 December 2020. About half of these may be of interest for the automotive sector concern: (i) Direct grants, selective tax advantages and advance payments of up to €800,000 to address companies' liquidity needs; (ii) State guarantees for loans taken by companies from banks; (iii) Subsidised public loans with favorable interest rates to companies; (iv) targeted support in the form of deferral of tax payments and/or suspensions of social security contributions and (v) Targeted support in the form of wage subsidies for employees.

Furthermore, the new Temporary Framework suspends the application of the “one time, last time” principle, meaning that state aid may be granted for damages suffered due to the COVID-19 outbreak, even if they have received rescue aid in the last ten years.[5]

Small and medium sized enterprises (SMEs) may be especially hard hit by the economic impacts of COVID-19. The Temporary Framework therefore provides for more relaxed conditions for state aid schemes supporting SMEs.

On 9 April 2020, the Commission sent a draft proposal to the EU Member States to extend the Temporary Framework to the Commission is now proposing to extend further the scope of the Temporary Framework by enabling EU Member States to provide recapitalisations to companies in need. Since such public interventions may have a significant impact on competition they will be subject to clear conditions as regards the State's entry, remuneration and exit from the companies concerned, strict governance provisions and appropriate measures to limit potential distortions of competition.[6]

An abundance of aid schemes are being approved

Both the EU Member States and the Commission have been quick in applying the new rules: the Commission has approved more than 50 aid schemes in response to the COVID-19 pandemic. A list of approved schemes can be found here.

More schemes will surely follow as Member States plan, announce and implement measures to fight the economic impact of the COVID-19 pandemic.

Feel free to reach out to discuss

In the spirit of solidarity with clients and contacts in these extraordinary times, Bird & Bird's competition law experts will guide you with your preliminary competition law queries by phone/email.

Morten Nissen, Co-Head Competition & EU Group

Anne Federle, Co-Head Automotive Group

Last reviewed: 14 April 2020

[1] See for example: Daimler’s measures, PSA closures

[2] See https://ec.europa.eu/competition/state_aid/what_is_new/TF_consolidated_version_as_amended_3_april_2020.pdf

[3] Similar action was taken during the 2008 financial crisis, when the Commission adopted a Temporary Framework in response to the economic and financial crisis.

[4] The characterisation of an event as being an exceptional occurrence is made by the Commission on a case-by-case basis, having regard to its previous practice in the field. In this regard, the following indicators relating to the event concerned must be cumulatively met: (i) unforeseeable or difficult to foresee; (ii) significant scale/economic impact, and (iii) extraordinary. See Commission Decision of 12 March 2020 in Case SA.56685 (2020/N) – DK – Compensation scheme for cancellation of events related to COVID-19, recital 25.

[5] This may be relevant for example to PSA which received restructuring aid in 2013 (see Press Release IP/13/757).

[6] See https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_610.