BELGIUM: EC OKs FSO aid with conditions

By just-auto.com editorial team | 20 December 2006

The European Commission has agreed to Polish government restructuring aid to car maker Fabryka Samochodow Osobowych (FSO) is compatible with EC Treaty state aid rules subject to conditions such as a limit on output.

The commission said that the aid is limited to the minimum necessary and that the restructuring plan of FSO is sufficient to restore the firm's long term viability but, without appropriate safeguards, could lead to undue distortion of competition.

"The car manufacturing sector has excess capacity and the aid risks shifting the difficulties and the burden of adjustment to other firms and workers in other member states," the EC said in a statement.

"In this context, FSO must limit its annual car production to 150 000 units until February 2011."

The commission's decision concerns a state guarantee of EUR62m ($83million) and other state support measures amounting to EUR16m. EUR52m of state aid had already been granted to FSO in the period before accession of Poland to the EU and was not covered by this investigation.

Following the bankruptcy of Daewoo Motor Corporation in 2000, its main shareholder, FSO experienced a drop in sales and heavy losses. Since 2000, the company has undergone restructuring and the total workforce has been reduced by two thirds. In 2005, it was taken over by the Ukrainian car manufacturer and distributor AvtoZAZ/UkrAvto.

Finally, in 2006 FSO concluded a licence agreement with GM DAT for the production of the Chevrolet Aveo.

In the restructuring plan, the majority of the restructuring costs are supported by private creditors and investors, the state aid is limited to the minimum necessary and does not provide the firm with surplus cash. The commission concluded that the restructuring plan would be sufficient to restore the long term viability of the company.

However, FSO will not develop new car models but will become an independent assembler of cars, bidding for the production of models developed by other car manufacturers. In this context, it will be in competition with the production plants of large manufacturers and with other independent car assemblers.

Hence the imposed on the plant's ouput and its ability to bid for additional licence agreements until February 2011, the commission said.