(1)

By letter dated 28 February 2007, registered with the Commission on 6 March 2007, the UK authorities notified the Commission of the above-mentioned measure for General Motor's Vauxhall assembly plant at Ellesmere Port. The Commission requested complementary information by letter of 4 April 2007 (ref. D/51586), to which the UK authorities replied on 22 May 2007.

(2)

The aid recipient is Vauxhall Motors Ltd, Ellesmere Port, UK (“Vauxhall”), a car manufacturing plant which is an operating unit of Vauxhall Motors Ltd and part of General Motors Inc. (“GM”). It manufactures cars from the Opel model range (which are sold in the UK under the Vauxhall badge), currently the Astra which will terminate in 2009. Vauxhall is located in Ellesmere Port in Cheshire in the North-West region of England (1) and employs close to 2 200 workers.

(3)

Vauxhall has suffered from a long record of underperformance. Initiatives taken since 2002 have considerably improved the plant's performance. However, according to the UK, the improvements represent only the changes needed to meet the basic standards for a GM plant. In order to survive in the long term, Vauxhall needs to implement a more comprehensive change and staff development programme in order to improve productivity and build quality and make Vauxhall a class leading plant.

(4)

On 17 April 2007, GM announced that Vauxhall was amongst the European GM sites that had been selected to produce the Global Compact Vehicle, the model that will replace the Astra.

(5)

Vauxhall intends to implement a wide-ranging training plan which breaks down into 8 individual training areas, 6 of which are considered by the UK to be eligible for training aid:

(6)

Outside the training intended to benefit from the notified State aid are the training areas “Apprentices” (an apprenticeship scheme for young people), “Model Change” (the training needed to adapt to the production of the Global Model Vehicle) and activities related to “Training & Performance Appraisal”. In addition, the UK authorities have informed the Commission that Vauxhall undertakes “routine training” in the skills necessary to the plant's normal operations.

(7)

According to the information provided by the UK, the training would consist mainly in general training, with some elements of specific training (2). The training plan will be implemented over six years (2007 to 2012 included) and will concern all employees at Vauxhall.

(8)

The aid would be given in the form of a direct grant of GBP 8 584 767 payable in six yearly instalments over the running time of the training programme. The aid would be implemented as an individual aid from the North West Development Agency.

(9)

According to the information provided by the UK, the eligible costs for the training and the aid break down as follows (the costs for the projects “Apprenticeships”, “Model Change” and “Routine Training Budget” are not considered eligible by the UK) (3)  (4):

(10)

According to the UK, the planned aid amounts respect the aid intensities of the Training Aid Regulation, i.e. 50 % for general training and 25 % for specific training, with an increase of 3,7 percentage points for training to disadvantaged workers within the meaning of Article 2(g) of the Training Aid Regulation (5).

(11)

According to Article 87 of the EC Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, in so far as it affects trade between Member States, constitutes incompatible State aid unless it can be justified under Article 87(2) or (3) of the EC Treaty.

(12)

The Commission considers that the measure constitutes State aid within the meaning of Article 87(1) of the EC Treaty. The funding takes the form of a grant from the general budget of the North West region, and is thus funded from State resources. The measures are selective as they are limited to Vauxhall. They are likely to distort competition within the Community since, by relieving it of a significant part of the costs of the training, the measure will provide Vauxhall with an advantage over other competitors not receiving the aid. Finally, the market for motor vehicles is characterised by extensive trade between Member States.

(13)

The UK authorities have notified the aid as individual aid under Article 5 of the Training Aid Regulation which provides that when the amount of aid granted to one enterprise for a single training project exceeds EUR 1 million, the aid is not exempted from the notification requirement of Article 88(3) EC Treaty. The Commission notes that the proposed aid in this case amounts to GBP 8 584 767, i.e. about EUR 13 million, to be paid to one enterprise, and that the training project is a single project. The Commission therefore considers that the notification requirement applies to the proposed aid, and that it has been respected by the UK.

(14)

When assessing an individual training aid which does not qualify for the exemption laid down in the Training Aid Regulation, the Commission will, in line with previous decisions (6) make an individual assessment of the aid on the basis of Article 87(3)(c) of the EC Treaty. However, for the purposes of this individual assessment the Commission will by analogy rely on the guiding principles of the Training Aid Regulation and in particular the exemption criteria laid down in its Article 4.

(15)

Moreover, the Commission will, in line with its established practice, assess whether the training aid measure is necessary to undertake the training in question. The necessity of the aid is a general condition for finding the aid compatible with the common market (7). If the aid does not lead to additional training, it cannot be considered to “promote” the economic development within the meaning of Article 87(3)(c) EC of the EC Treaty nor to correct the market imperfections that lead companies to underinvest in the training, as mentioned in recital 10 of the Training Aid Regulation.

(16)

In view of the information submitted by the UK, the Commission has doubts on the compatibility of the aid with the common market for the reasons indicated below.

(17)

As indicated above, the Commission takes the view that training aid can be compatible with the common market only if it creates a necessary incentive for the funded training, in the absence of which the training would not take place. Training which is part of the normal operations of an undertaking and for which market forces alone should provide sufficient incentive will not qualify for training aid.

(18)

The UK has indicated that all training which is necessary for Vauxhall's normal operations is provided as part of “routine training”, the cost of which is not included in the eligible costs of the notified aid (the same is claimed for the training necessary to adapt to the production of the Global Concept Vehicle, covered by the heading “Model Change”).

(19)

According to the UK, the training covered by the notification is significantly in excess of the work required to maintain its current business and would, because of it prohibitive cost, not be undertaken by Vauxhall without the aid. The aid would thus be a necessary condition for the training.

(20)

The Commission nevertheless doubts the incentive effect of the aid on parts of the training programme:

(21)

In the Commission's view, this training appears to be necessary to ensure Vauxhall's normal operations. This should provide Vauxhall with sufficient incentive to undertake the training without aid.

(22)

The UK has indicated that the training in production systems which is indispensable to Vauxhall's operations is provided through “routine training” which is distinct from the Production System Training. However, the UK has not provided sufficient information to allow the Commission to verify the contents of the “routine training” and to compare it to the Production System Training to satisfy itself that the latter provides additional qualifications.

(23)

The Commission consequently doubts that the aid is necessary for Vauxhall to undertake the Production System Training.

(24)

Concerning a particular item of the Production System Training, namely lines A25.1.1 to A25.1.6 “Statutory Inspection Training”, the Commission observes that any training which is required by statute will necessarily be undertaken even in the absence of State aid. The Commission would require specific explanations regarding this point.

(25)

The Commission understands that GMS is an integrated manufacturing system which has been developed by GM and which is common to all GM car manufacturing facilities. Training the workforce in GMS would therefore appear indispensable to Vauxhall's normal operations and should be undertaken even in the absence of the notified State aid.

(26)

The UK has indicated that GMS training has been undertaken at Vauxhall before, but that the Integrated Training Plan aims at the refreshment and extension of the skills initially learnt and that this expenditure is discretionary and would not be brought about by the simple operation of market forces.

(27)

However, the Commission considers that training in the manufacturing systems applied at Vauxhall, including appropriate refreshment courses, are essential to operations. The Commission considers that the UK authorities have failed to provide concrete information to substantiate the claim that the Integrated Training Plan goes beyond what it is necessary for Vauxhall's normal operations and would not be undertaken in the absence of the aid. The Commission consequently doubts that the notified aid, in this respect, is compatible with the common market.

(28)

The UK has indicated that the programme is nonessential to Vauxhall's operations and could be curtailed without business unduly suffering. The costs of the training cannot be considered part of operating costs. Expenditure on the Undergraduate programme is discretionary and up for review every year. It is liable to budget cuts. The State aid would guarantee its continuation.

(29)

At this stage, the Commission observes that the Undergraduate programme has been in place for a number of years without State aid, which would indicate that the aid is not necessary for this training. The UK, which has stated that the Undergraduate training brings new talent into the company and is a key element of the training to be undertaken by Vauxhall, has not provided any concrete evidence that the programme will be discontinued in the absence of aid. The Commission is consequently not satisfied that the aid is compatible with the common market in this respect.

(30)

The notions of general and specific training are defined in Article 2(e) of the Training Aid Regulation. Specific training is directly and principally applicable to the employee's present or future position in the assisted undertaking and provides qualifications which are not or only to a limited extent transferable to other firms or fields of work. General training, on the other hand, provides qualifications which are transferable to other firms or fields of work and therefore substantially improve the employability of the employee. The essential distinction between the two forms of training is thus the transferability of the acquired skills.

(31)

For the different parts of the Vauxhall training programme the UK authorities have indicated whether they consider the training to be general or specific (and, consequently, which maximum aid intensity should apply in accordance with Article 4 of the Training Aid Regulation). The Commission nevertheless questions the UK's qualifications as regards the following training projects:

(32)

As indicated above, this training concerns all manufacturing and quality control systems at Vauxhall. The UK has indicated that all training will be given by external trainers and concerns third party equipment which is used in other undertakings and sectors, thus providing trainees with transferable qualifications.

(33)

The Commission nevertheless considers that the UK has not provided it with sufficient information to allow it to ensure that all training provided under this heading is indeed transferable. The UK would need to provide the Commission with details on the basic “routine” training at Vauxhall so that the Commission can compare the nature of this training and assess to which extent it concerns skills which are specific to Vauxhall or GM.

(34)

As indicated above, this is, to the Commission's understanding, training in the Global Manufacturing System which was developed by GM and is applied at GM facilities.

(35)

The UK argues that GMS is based on a set of principles applicable to any business situation which involves a regular process. The underlying principles are applied both within and outside the automotive sector. The employees would thus acquire a set of skills which will make them capable of performing more efficiently with any employer. In addition, some specific elements of training have been identified and notified as specific training.

(36)

The Commission nevertheless questions whether training into a proprietary manufacturing system can be considered to provide transferable qualifications. Although certain underlying notions may be widely shared, the Commission considers that the training, insofar as it concerns the application of these notions to a concrete production process, is likely to be specific. The Commission would therefore require more detailed information on this training and how closely linked it is to practical applications in the GM manufacturing process.

(37)

The Commission notes that the UK authorities have not submitted any details on the content and expected output of the training under this heading as, on their own account, this information is not yet available. In spite of this, the UK authorities claim that all training provided under this heading is general training within the meaning of the Training Aid Regulation.

(38)

However, the Commission has doubts about the transferability of skills acquired as part of a “cultural change” which — in the words of the UK authorities — is specifically focused on “jointly improving the key production metrics of the plant relating to cost and quality”. In view of this objective and the notification's statements that “individual cultures widely vary between different organisations” and that “there is no optimal culture which can be easily and quickly adopted” the Commission doubts that this part of the training programme provides skills which are transferable by individual employees to other firms or fields of work. The Commission consequently doubts that training fitting the description given by the UK authorities constitutes general training.

(39)

The UK has argued that the principles of lean manufacturing are generally applied across the manufacturing industry and that, once acquired by the trainee, provide qualifications which are widely transferable.

(40)

Although the notion of lean manufacturing may rest on a body of generally applicable principles and techniques, the Commission nevertheless doubts whether this training can be dissociated from its practical application at Vauxhall or within the GM group at large, and thus whether the qualifications it provides are largely transferable by individual employees to other firms or fields of work. The Commission consequently doubts that this constitutes general training (8).