30.04.2020

Corona-related state aid for the automotive sector and logistics

Background

While sectors such as the aviation industry have already received tailor-made government support, (see www.luther-lawfirm.com/en/newsroom/blog/detail/corona-related-state-aid-for-the-aviation-industry), the automotive and vehicle manufacturing industries have so far only been able to take advantage of general, sector-independent aid measures (as of 30 April 2020). This could soon change, however, as aid for the automotive industry, for example in the form of a purchase incentive, is being discussed at least in Germany. State support measures that constitute aid within the meaning of Art. 107 (1) TFEU may only be granted by Germany after the European Commission ("Commission") has approved them (see 1.). In general, these approvals are currently rendered swiftly (see 2.). It should be noted that measures which benefit companies in all sectors, i.e. not only the automotive and vehicle manufacturing or logistics industries (such as tax deferrals), do not require approval by the Commission at all (see 3.). In the coming weeks and months the Commission is likely to make a number of other decisions, possibly also on some of the State aid measures currently discussed for companies in the automotive sector (see 4.).

1. Purchase premium incentive for for the automotive industry cars would be subject to approval

Leading automotive manufacturers recently demanded that the Federal Republic of Germany introduce an incentive to scrap old cars and buy new ones and thus stimulate sales, which had recently fallen sharply because of the Corona pandemic ("purchase incentive"). Such a purchase incentive would constitute State aid (Art. 107 (1) TFEU). This is because a purchase incentive - regardless of its form or design ("innovation premium" or "scrapping premium") - would always constitute an economic advantage which is granted by the State and which benefits certain undertakings or the production of certain goods  (namely cars). Staid aid must in principle be approved by the Commission before it can be granted. The Commission currently approves State aid to combat the effects of the Corona pandemic very quickly, usually within a few days. The Commission grants such rapid approvals in particular on the basis of the so-called "Temporary Framework", which it published on 19 March 2020 and last extended on 3 April 2020. The Temporary Framework is a communication on the conditions under which the Commission approves State aid to combat the effects of the Corona pandemic quickly because, in accordance with Art. 107 (3) (b) TFEU, it is aid “toremedy a serious disturbance in the economy of a member state" (for more information on the Temporary Framework see www.luther-lawfirm.com/en/newsroom/blog/detail/staatliche-beihilfen-und-die-corona-pandemie). A purchase incentive could, in principle, also be designed in such a way that it complies with the conditions of the Temporary Framework and would thus be approved quickly. However, this would require in particular that the amounts of the purchase incentive per manufacturer do not exceed EUR 800,000. With an incentive of around EUR 5,000 per vehicle purchased, the threshold would thus already be exceeded at 160 vehicles per manufacturer - obviously not a viable option. Therefore, an approval of the purchase incentive could not be based on the Temporary Framework, but would have to be based directly on Art. 107 (3) (b) TFEU. This basis would not limit the total amount of the purchase incentive per car manufacturer. In particular, an approval based on Art. 107 (3) (b) TFEU would require that the amount and duration of the purchase incentive be limited to "remedying a serious disturbance in the economy of a member state". The Commission will not be able to verify whether these conditions are met quite as quickly as in the other cases it has approved under the Temporary Framework.

2. Current Commission authorisation practice (irrespective of sector)

On the basis of the Temporary Framework alone, the Commission has so far approved over 60 State aid measures from all EU member states (as of 30 April 2020). In addition, the Commission made some approvals on the basis of Art. 107 (2) (b) and (3) (b) TFEU. All aid measures intended to combat the consequences of the Corona pandemic were approved rather quickly. This included, for example, the so-called German Economic Stabilisation Fund, which provides financial assistance to medium and large enterprises in all sectors affected by the Corona pandemic.

3. Non-sector-specific subsidies

Like all other sectors, automotive companies and logistics providers can of course also take advantage of government support measures that benefit all companies and economic sectors equally, such as subsidies for short-time work, wage subsidies or tax advantages (e.g. deferral of corporate and sales tax or social contributions). These measures do not favour a particular undertaking (or branch) and therefore do not constitute State aid subject to authorisation within the meaning of Art. 107 (1) TFEU.

4. Outlook

The Commission is expected to continue to take numerous other decisions in the short term and quickly approve further State aid programmes. For the first time, these could include measures specifically for companies in the automotive and vehicle manufacturing or logistics sectors. In this respect, in Germany business and politics are already discussing a purchase incentive to promote car sales (see 1.). In addition, the Verein Netzwerk Logistik Mitteldeutschland e.V., an association of logistics companies, has already called for a temporary suspension of the truck toll for empty runs by logistics companies caused by the Corona pandemic. Finally, several EU member states increasingly call for protection of their key industries from a hostile takeover (for example by state-owned corporations), if necessary by nationalisation. In Germany, such key industries would include at least the automotive OEMs and their larger suppliers.

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