Strategic Review-


The German government has been told that it must cut back its regional aid for the construction of a new Volkswagen car factory in Dresden to 85 per cent of the sum proposed. The revised aid of 145 million Deutschmarks, (about Pounds 47 million), is part of a total investment of DM 1,000 million for a so-called "transparent factory," which would allow a customer to observe the final assembly of his vehicle on site.

Germany claimed the aid was necessary to dissuade VW from building its plant in the Czech Republic. The Commission, considering the viability of the Czech site, said that although there were "possible image risks" in building the top-of-the-range D1 model in an eastern European country, it was "plausible that such an image risk could be compensated by additional marketing measures."

After initially expressing doubts about the compatibility of the German aid with EU rules for the car sector, the Commission opened a formal investigation but said today (Wednesday) that no comments from third parties had been received. It therefore approved the aid in principle, but reduced the amount after assessing the qualifications of Dresden for regional assistance on a cost-benefit basis. VW plans an output of 37,500 cars a year from the new plant.

Alan Osborn

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