The automotive industry is one of the hardest hit sectors of ‘the real economy’. Since summer 2008 car sales have crashed all over Europe. This collapse in volume does not only affect the vehicle manufacturers but feeds down the supply chain and also affects dealerships. It has caused a significant cash burn. However, due to the tightness in the financial markets, companies in the automotive industry experience severe difficulties in getting money from private banks. The governments of various EU member states, as well as European institutions, have therefore taken measures to support the industry. On the one hand they aim to encourage demand for cars and on the other hand they grant state aid directly to the manufacturers and suppliers.

Incentives to consumers  

Many European governments provide incentives to boost demand levels. Some countries – such as Austria, France, Germany, Italy, Portugal, Romania, Spain and Cyprus – have launched scrapping schemes. These schemes differ significantly. For example, the German government has put in place a bonus of €2,500 for car buyers trading in cars older than nine years for new, lowemission passenger vehicles. By contrast, the bonus in France amounts only to €1,000; in Italy bonuses between €1,500 and €4,000 can be applied for; and Spain provides interest-free loans of up to €10,000 for purchasing new cars. Moreover, some EU member states use general tax measures to incentivise the demand for new cars. For example, the UK has cut VAT on cars to 15 per cent from 17.5 per cent until 31 December 2009 and Germany exempts new cars registered for the first time between 5 November 2008 and 30 June 2009 for up to two years from the annual road tax.  

The European Commission accepts such incentives if they are granted without discrimination with regard to the origin of the vehicles.  

Financial assistance to vehicle manufacturers and suppliers  

Governments and European institutions – eg the European Investment Bank (EIB) – have also put in place measures directly aiming to provide financial assistance to companies from the automotive sector.  

National measures  

Measures focusing on manufacturers and suppliers include loans, guarantees and subsidies.  

For example, the French government, PSA and Renault have installed an investment fund to help suppliers with €300m. Moreover, the French public authorities will spend €400m during the next four years to help French vehicle manufacturers develop fuel-efficient vehicles. The French government also supports its domestic industry with loan guarantees – eg €1bn for the financing arms of PSA and Renault.  

The German government provides via its public bank KfW loans of up to €300m to companies having difficulties getting capital on the financial market.

Furthermore, state guarantees have been facilitated and extended to enable companies to take up loans at favourable conditions in the short term. Finally, the German government is increasing its spending for innovation, inter alia by promoting research and development (R&D) projects in the framework of its central innovation programme for small and mediumsized enterprises (SMEs). These measures serve to support all industries, including the automotive sector.  

Finally it should be noted that the financial branches of vehicle manufacturers may also qualify for aid under the schemes adopted by the EU member states and approved by the Commission for the banking sector.  

Measures by European institutions  

The EIB has in place a programme specifically aiming to support R&D projects in the automotive sector. Under this ‘European clean transport facility’, vehicle manufacturers and suppliers may benefit from loans at favourable conditions. Moreover, the EIB provides under its ‘risk sharing finance facility’ loans for risky R&D projects by companies in various industry sectors, including the automotive industry.  

The Commission supports the car industry in its efforts to maintain investments into future technologies, in particular by developing ‘green’ vehicles, primarily through its seventh research framework programme.  

Conclusions  

There is a wide variety of state measures supporting vehicle manufacturers and suppliers. In particular, subsidised loans and guarantees may play an important role in meeting the automotive sector’s financial needs and restructuring certain companies. Since the budgets are limited, applications for such loans and guarantees should be submitted as soon as possible.