State Aid N 635/2008 – Italy – LIP – Fiat Sicily

EUROPEAN COMMISSION

Brussels, C(2009)

In the published version of this decision, some PUBLIC VERSION information has been omitted, pursuant to articles 24 and 25 of Council Regulation (EC) No 659/1999 of WORKING LANGUAGE 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty, concerning This document is made available for non-disclosure of information covered by professional information purposes only. secrecy. The omissions are shown thus […].

Subject: State aid N 635/2008 – Italy – LIP – Fiat Sicily

Sir,

1. PROCEDURE

(1) On 15 December 2008, the Italian authorities notified by means of an electronic notification, in line with the individual notification requirement laid down in point 64 of the Guidelines on National Regional Aid for 2007-2013 (RAG)1 and in the Block Exemption Regulation for regional aid2, aid for a large investment project by Fiat Group Automobiles S.p.A. in Termini Imerese in Sicily.

(2) The Commission requested additional information by an electronic mail dated 3 February 2009 to which the Italian authorities replied on 18 March 2009 (A/6471).

(3) Additional information was submitted by the Italian authorities via e-mail on 30 March 2009 (A/7431), 31 March 2009 (A/7577), 3 April 2009 (A/7965 and A/7968) and on 6 April 2009 (A/8152).

2. DESCRIPTION OF THE AID MEASURE

(4) The Italian authorities intend to promote regional development by providing regional aid to Fiat Group Automobiles S.p.A. for an investment project in Termini Imerese in Sicily.

1 OJ C 54, 4.3.2006, p. 13

2 Commission Regulation (EC) No 1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid, OJ L 302, 1.11.2006, p. 26:

2.1. The beneficiary

(5) The beneficiary of the aid is Fiat Group Automobiles S.p.A. (Fiat Automobiles). It is a 100% subsidiary of Fiat Group.

(6) Fiat Group is an international manufacturer and supplier of passenger cars, light commercial vehicles, trucks, tractors, agricultural machinery, excavators, engines and motor vehicles' components and production systems. Fiat Automobiles is manufacturing passenger cars under the brands Fiat, Lancia, Alfa Romeo, Abarth and cars under the brand of Fiat Professional. The production of Fiat Group Automobiles sector includes also the Maserati and Ferrari brands.

(7) The Italian authorities confirmed that Fiat Automobiles is not a company in difficulty in the meaning of the Community guidelines on State aid for rescuing and restructuring firms in difficulty3 .

2.2. The investment project

2.2.1. The notified project

(8) The notified investment project is an initial investment by Fiat Automobiles in Termini Imerese in Sicily, for the production of cars in the small cars-segment. The investment will consist in the introduction of a new product – a new passenger car under the Lancia brand which is to replace the existing production of the old Lancia Ypsilon, and which is provisionally named New Lancia Ypsilon, and it will include the extension of the existing plant and a significant change in the production process. The project comprises also the extension of the existing plant of Ergom Automobiles S.p.A. (Ergom), located at the Termini Imerese site. Ergom is a 100% subsidiary of Fiat Group and supplies plastic components which will be fully used in the production of the new car.

(9) Fiat plans to produce stamped parts of the New Lancia Ypsilon car in it plants located in Melfi (Basilicata) and Pomigliano (Campania). Both plants are around 500 km distant from the plant in Termini Imerese. Fiat foresees investments in new specific stamps necessary for the body of the New Lancia Ypsilon. The amount of the investments to be located in Melfi and Pomigliano is estimated at EUR 59.280 million in nominal terms. The investments in Melfi and Pomigliano are not subject of the notified investment in Termini Imerese.

(10) Two types of platforms are used by Fiat for the production of cars in the small cars' segment, namely platform "A" and platform "B". […] "A" platforms are used for example for the production of Fiat Panda, Fiat 500, Ford Ka, old Lancia Ypsilon; "B" platforms for the production of Fiat Grande Punto, Alfa Romeo Mito, Lancia Musa, Fiat Idea.

3 OJ C 244, 1.10.2004, p. 2. In particular, the following circumstances laid down in paragraph 10 of the rescue and restructuring guidelines do not apply: (a) in the case of a limited liability company, where more than half of its registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months; (c) whatever the type of company concerned, where it fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings. 2

(11) The New Lancia Ypsilon will […] be produced on the […] platform, and more precisely […].

(12) The Italian authorities explained that the New Lancia Ypsilon is a completely new car, and not the new version of an existing model. The New Lancia Ypsilon will have distinct features from the Old Lancia Ypsilon: new premium style, bigger size, new shape, 5 door body, eco friendly (including […]).

(13) The Italian authorities explained that therefore fundamental changes to the existing platform are required in order to launch the new Lancia model. The investment will consist in a significant transformation of the existing production lines and in the implementation of new lines and systems. Body in white shop will be significantly transformed: new underbody line, new bodyside line, new body line, new body respot line, new closures and new hanging line. New lines (retouch line) will be also implemented in the current paint shop and an upgrade of other existing pre-treatment and primer lines will be performed. Lastly, the general assembly line will be equipped with new lines and part lines and other lines of the shop will be up-graded4.

(14) Fiat also plans to buy premises from an old supplier at Termini Imerese site, Universalpa, to which some minor "body in white" productions will be moved in order to free space in the main plant and thus create the necessary conditions for the planned production capacity increase, from currently 370 vehicles per day, to 500 vehicles per day.

2.2.2. Previous projects on the same site

(15) Previous investment projects at Termini Imerese plant also received aid in the past.

(16) In 2004 Fiat Automobiles applied for a subsidy for the investment in Termini Imerese plant in 2004. On 19 February 2006 Fiat Automobiles was granted aid in the nominal amount of EUR 5.307 million for the investment in the plant in Termini Imerese, where the eligible expenses of the project amounted to EUR 30.754 million. The aid was granted under the Law 488/1992 (N715/1999).

4 The basic production process of cars consists of five major steps or shops. (1) Press shop: Huge rolls of steel and aluminium – the so-called coils – are mechanically cut into metal blanks. These blanks are then reworked by sheet metal presses. This is the stage in which the material is drawn, formed and –depending on what is needed - cut, perforated, bevelled or post-formed, everything almost completely automatic. (2) Body shop: Chassis construction is the most highly automated area of production. Individual steel and aluminium components are first made into smaller assembly units such as doors, frame forestructures or underbodies. Only then are they welded, glued or bolted together. The pressed metal parts are assembled almost exclusively by robots. (3) Paint shop: Chassis are first cleansed and degreased in immersion baths and then coated with a layer of zinc phosphate. After this, four additional layers of paint are applied to protect the automobile from environmental influences and give the surface long lasting brilliance and lustre. (4) Assembly shop: The painted chassis is completed manually. The individual manufacturing process allows for customizing the cars, including different equipment, components and country-specific variations. (5) In the final assembly shop, the drive unit –consisting of engine, transmission, axles and the exhaust system – is precisely set and bolted to the body, the so-called wedding. The vehicle now stands on its own four wheels. The last parts are mounted and the motor started for the first time. After passing numerous tests, the vehicle rolls out of the factory (taken from www.bmwgroup.com, because the overall process is the same for all vehicle production)

Works on the project started in 2004 and the investment concerned the Lancia Ypsilon currently produced in Termini Imerese.

(17) The Italian authorities informed that the assets concerned by that aid would be used until the complete execution of the phase out of the current Lancia Ypsilon model […] and that part of these assets could be used in the future for a longer period only to ensure the production of some components to be sold as spare parts for the current Lancia Ypsilon.

(18) Ergom Automotive S.p.A. has not received any aid in the previous 3 years.

2.2.3. Timing of the new investment project

(19) Works on the investment project started in March 2008 (first orders of lines and machinery sent to the suppliers) and it should be completed by the end of […]. The full production in the plant should be reached in […].

(20) Aid is granted under the condition that the beneficiary will maintain the investment in the assisted region for a minimum period of five years after completion.

2.3. Legal basis

(21) The aid will be granted under the existing scheme XR 43/2008 - "Normativa di attuazione dei contratti di programma - Art . 8 bis, comma 3, del decreto legge 2 luglio 2007 n. 81, convertito con modificazioni dalla legge 3 agosto 2007 n. 127. Il decreto, registrato alla Corte dei conti il 22 febbraio 2008 e pubblicato nella g.u. n. 56 del 6 marzo 2008, disciplina i criteri, le condizioni e le modalità , per la concessione delle agevolazioni finanziarie attraverso la sottoscrizione dei contratti di programma, di cui all’articolo 2, comma 203, lettera e) della legge 23 dicembre 1996, n.662." (Contratti di programma).

2.4. Eligible costs

(22) The total cost of planned investment in this project comes to EUR 379.758 million, of which EUR 319.086 million in nominal terms are eligible under regional aid rules. It comprises costs for civil works and for production systems. Years 2008 2009 2010 NPV5 Nominal Fiat 41.195.000 69.175.000 181.016.000 266.248.405 Automobiles Ergom 24.920.000 2.780.000 25.887.330

TOTAL 41.195.000 94.095.000 183.796.000 292.135.735 319.086.000

Table 1: Investment costs eligible for aid (in EUR)

5 Net present value

(23) The eligible expenditure for the project amounts to EUR 292 135 735, discounted to the date of notification. The present value of the eligible costs supported by Fiat Automobiles amounts to EUR 266.248.405 and by Ergom to EUR 25.887.330.

(24) The Italian authorities confirmed that all the machinery and equipment accounting for eligible expenditure is new and that it will be used exclusively for the production of the New Lancia Ypsilon model.

(25) Eligible costs do not comprise intangible assets.

(26) The costs of the investment which are not eligible for aid refer to start-up costs and used assets.

2.5. Financing of the investment

(27) The project will be financed by an already committed long term loan at market conditions, a capital injection to Ergom (EUR 7 million), other financial resources, and the present aid.

2.6. Regional aid ceiling

(28) Termini Imerese is situated in the Sicily region which is an assisted area in virtue of Article 87(3)(a) of the EC-Treaty with a standard regional aid ceiling for large enterprises of 30% Gross Grant Equivalent (GGE) until end 2013 according to the Italian regional aid map6.

2.7. Aid

(29) The Italian authorities intend to grant total aid for the project in Termini Imerese in the form of direct cash grant amounting to EUR 46 301 000 in nominal terms which corresponds to EUR 40 981 130 in value discounted to the date of notification. The Italian authorities plan to pay out the aid in 3 yearly instalments from 2009 to 2011. The aid granted to Fiat Automobiles amounts to EUR 37 353 980 in present value (EUR 42 203 000 in nominal) and to Ergom to EUR 3 627 150 in present value (EUR 4 098 000 in nominal value).

(30) Aid to Ergom is granted in the scope of the scheme XR 43/2008 and is not subject to the individual notification to the Commission.

(31) Pursuant to the provisions of the scheme XR 43/2008 the aid for the project may not be cumulated with other public support received for the same eligible costs, including support "de minimis".

(32) Before works on the project started on 18 March 2008, the beneficiary applied for the aid on 7 March and the Italian authorities replied in writing on 13 March 2008 that, subject to detailed verification, the project in principle meets the conditions of eligibility laid down by the scheme.

6 OJ C 90, 11.04.2008, p. 4 5

(33) The Italian authorities confirmed that the aid will never exceed neither the notified aid intensity, nor the notified aid amount.

2.8. General provisions

(34) The Italian authorities have committed to submit to the Commission: − within two months of granting the aid, a copy of the relevant acts concerning this aid measure; − on a five-yearly basis, starting from the approval of the aid by the Commission, an intermediary report (including information on the aid amounts being paid, on the execution of the aid contract and on any other investment projects started at the same establishment/plant); − within six months after payment of the last tranche of the aid, based on the notified payment schedule, a detailed final report.

3. ASSESSMENT OF THE AID MEASURE AND COMPATIBILITY

3.1. Existence of aid

(35) The financial support to Fiat Automobiles will be given by the Italian authorities in the form of a direct grant and is financed through the budget of the State. The support can thus be considered as given by the Member State and through State resources within the meaning of Article 87 (1) of the EC Treaty.

(36) As the aid is granted to a single company, Fiat Automobiles, the measure is selective.

(37) The financial support given to Fiat Automobiles will relieve the company from costs which it normally would have had to bear itself and therefore the company benefits from an economic advantage over its competitors.

(38) The financial support from the Italian authorities will be given for investments resulting in the production of vehicles. Since these products are subject to trade between Member States, the support given is likely to affect trade between Member States.

(39) The favouring of Fiat Automobiles and its production by the Italian authorities means that competition is distorted or threatened to be distorted.

(40) Consequently, the Commission considers that the notified measure constitutes State aid to Fiat Automobiles within the meaning of Article 87(1) of the EC Treaty.

3.2. Legality and compatibility of the aid measure

(41) By notifying the planned aid measure before putting it into effect, the Italian authorities respected the individual notification requirement laid down in Article

7 (e) of the Block Exemption Regulation for regional aid7 and point 64 of the RAG.

(42) As the measure relates to a regional investment aid, the Commission assessed it on the basis of the RAG. The measure was notified as an aid granted under an existing scheme which exceeds the thresholds defined in paragraph 64 and 68 of the RAG. Therefore the Commission took into account the provisions of the RAG and, specifically, the provisions of section 4.3 of the RAG relating to large investment projects.

3.3. Compatibility with the general provisions of the RAG

(43) The Commission has verified that the projects comprise initial investment within the meaning of the RAG and that no replacement investment is involved.

(44) An initial investment is defined under point 34 of the RAG 2007-13 as investment in material and immaterial assets relating to the setting up of a new establishment, the extension of an existing establishment, the diversification of the output of an establishment into new, additional products; a fundamental change in the overall production process of an existing establishment. This definition differs from the definition under the RAG 2000-2006 which had included the last two topics under the heading "fundamental change in the product or process of an existing establishment through diversification, modernisation, and rationalisation".

(45) The Commission recognizes that the nature of the vehicle business is dynamic, with products slightly updated on an annual basis with a more substantial up- date after three years from introduction, and an all new vehicle after seven years, all with additional investment.

(46) The production of Lancia Ypsilon started in 1996. In 2003, a second generation Lancia Ypsilon was brought onto the market which benefitted from a major facelift in 2006.

(47) The Italian authorities demonstrate that […]. It is therefore considered that the New Lancia Ypsilon qualifies as an investment into the diversification of the output of an establishment into new, additional products, and thus falls under the definition of "initial investment". The Commission notes in this context that the investment includes in addition the extension of the production site and a substantial increase in the production capacity of the plant (output per year). Moreover the production process of the existing establishment in Termini Imerese will be fundamentally modified.

(48) The Commission is therefore convinced that the notified project constitutes an initial investment within the meaning of the RAG (point 34 thereof).

7 Commission Regulation (EC) No 1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid, OJ L 302, 1.11.2006, p. 26.

(49) The costs eligible for investment aid (see table in point 2.4 above) are defined in line with points 4.1 and 4.2 of the RAG, and the rules on cumulation are respected.

(50) Furthermore, Fiat Automobiles applied for aid before starting work on the project and the Italian authorities agreed to grant State aid subject to the Commission's approval, as stipulated in paragraph 32 above. This is in line with point 38 of the RAG.

(51) Fiat Automobiles also has the obligation to maintain the investment in the region for a minimum of five years after completion of the project.

(52) The beneficiary provides a financial contribution of at least 25% of the eligible costs in a form which is free of any public support.

(53) Fiat is not a firm in difficulty in the meaning of the Rescue and Restructuring Guidelines, and therefore not excluded, in application of point 9 of the RAG, from the scope of application of the RAG.

(54) The Commission therefore considers that the aid complies with the general compatibility criteria laid down in the RAG.

3.4. Compatibility with the provisions for aid to large investment projects

3.4.1. Single investment project

(55) Point 60 of the RAG states that in order to prevent that a large investment project is artificially divided into sub-projects to escape the provisions of these guidelines8, such a project will be considered as a single investment project when the initial investment is undertaken in a period of three years and consists of fixed assets combined in an economically indivisible way. In this context, footnote 55 to the RAG states that the Commission will take into account the technical, functional, and strategic links and the immediate geographical proximity.

(56) The investment projects realized by Fiat Automobiles and Ergom are both carried out in Termini Imerese and are functionally linked as the production of Ergom will be totally used for the production of the New Lancia at the site and will not be sold on the market. Both companies fully belong to the same group, Fiat Group. Therefore, the investment of Fait Automobiles and of Ergom is considered as a single investment project in the meaning of point 60 of the RAG.

(57) The beneficiary received aid in the past for investments on the same site. However, since more than three years elapsed since the start of the old project (in November 2004) and the start of the notified project (March 2008), in line with previous Commission decisions9, the old and the new investments do not form a single investment project in the meaning of the RAG.

8 Member States might be inclined to notify two separate projects because treating them as separate instead of as one single investment project normally allows a higher maximum aid intensity due to the application of the automatic scaling-down mechanism of paragraph 61 of the RAG. 9 N 872/2006 – Aid to Qimonda AG; N 865/2006 – Aid to Adolf Jass Schwarza GmbH 8

(58) The New Lancia Ypsilon project in Termini Imerese will also trigger certain investments in Melfi and Pomigliano from where certain parts will be shipped over a distance of some 500 km to Termini Imerese. These additional projects cannot be considered to take place in the immediate geographic proximity. On the basis of the principles laid down in point 60 and footnote 55 of the RAG, it is considered that these investments do not form part of a single investment project.

3.4.2. Aid intensity (paragraph 67 of the RAG)

(59) The planned total eligible expenditure of the project in Termini Imerese in discounted value is EUR 292 135 735. This leads to a maximum aid intensity allowed of 14.41 % gross grant equivalent (GGE).

(60) The planned total aid amount in discounted value is EUR 40 981 130. Therefore, the aid intensity (GGE) is 14.03 %. Since the total aid intensity for the project is lower than the maximum aid intensity allowed, the proposed aid intensity for the project complies with the RAG and the planned aid to Fiat Automobiles in the discounted value of EUR 37 353 980 is below the maximum aid amount for the single investment project in Termini Imerese of EUR 42 097 845.

3.4.3. Compatibility with the rules under paragraph 68(a) and (b) of the RAG

(61) The Commission’s decision to allow regional aid to large investment projects falling under point 68 of the RAG depends on the market power of the beneficiary before and after the investment and on the capacity created by the investment. To carry out the relevant tests under paragraph 68(a) and (b) of the RAG, the Commission has first to establish appropriate product and geographic market definitions.

Product concerned

(62) According to point 69 of the RAG the product concerned is normally the product covered by the investment project. In this case the product concerned by the investment is a passenger car, namely the New Lancia Ypsilon. No other product can be produced on the planned production facilities, without major additional investments.

Relevant product market

(63) Fiat Automobiles plans to produce the New Lancia Ypsilon model in the plant in Termini Imerese.

(64) According to point 69 of the RAG, the relevant product market includes the product concerned and its substitutes considered to be such either by the consumer (by reason of the product's characteristics, prices and intended use) or by the producer (through flexibility of the production installations).

(65) The Commission recognizes that the overall market for passenger cars cannot be used straightforwardly as the relevant product market considering limited demand as well as supply-side substitution.

(66) The Commission notes that Prodcom codes are not relevant for a further segmentation in this case, and this classification is not generally used in the industry.

(67) Nevertheless, the Commission notes that no generally accepted subdivision of passenger cars exists.

(68) The Commission considered several other classifications such as the ones used by the European Association of Manufacturers (ACEA), the European New Car Assessment Programme (NCAP), the US department of energy, and other large car manufacturers on their website.

(69) These classifications differ because they are used for different purposes (crash tests for example), because of geographic differences (US market is more dominated by large cars) and because no generally agreed classification exists.

(70) Global Insight, a major forecasting consultancy, proposes a narrow segmentation of passenger cars (27 segments) and is used as a common reference in the sector. It allocates cars to different segments, based on a hybrid combination of all factors: interior/exterior dimensions, price, competitor models, brand, etc. The Global Insight segmentation is accepted and proposed by the Italian authorities for the assessment of the project at hand and they provided market data based on this segmentation. The Commission estimates that the Global Insight market classification can be considered as an appropriate and sufficiently detailed reference and applies this segmentation for the purposes of the assessment of the aid project at hand.

(71) The Italian authorities suggest that, given the body shape and the size of the New Lancia Ypsilon, it should be classified as a B-segment car ("supermini class"), […]. Examples of other new car models belonging to the B segment are: Citroen C3 new, Ford new Fiesta, Mazda 2, Seat New Ibiza, Honda New Jazz, Dacia/Renault Sendero, Volkwagen New Polo.

(72) The Italian authorities add that also the "premium" equipment of the car is comparable to, and to some extent substitute of, other products belonging to the same B-segment.

(73) A formal statement by Global Insight submitted by the Italian authorities on 31 March 2009 confirms that vehicles up to a length of 3,800 mm, and priced up to CHF 15,000 (or about EUR 9,800), fall within the A-segment, whereas vehicles with a length ranging between 3,700 mm and 4,200 mm and priced between CHF 15,001 and CHF 22,000 ( EUR 9,800 - EUR 14,400) are allocated to the B- segment. […].

(74) There are no reasons to doubt the correctness of this allocation of the New Lancia Ypsilon to the B-segment.

(75) However, even a clear allocation to a given segment does not allow concluding that the relevant product market is limited to this segment. As the Commission noted already in its Ford Craiova decision (N767/07), there exists some possibility for demand-side substitution at the margins of each of the types of passenger cars exists, for example, between A-segment and B-segment cars, or

between the luxury segments.10 It considered the possibility of a chain of substitution on the demand-side across the different segments. On the other hand, it might be difficult to argue for the substitutability of vehicles at the extreme ends of the possible segmentations, for example, the cheapest passenger cars are not direct substitutes for more expensive passenger cars.

(76) Considering these difficulties of an exact definition of the segment for the new Lancia Ypsilon model, the Commission considers for the purpose of this state aid decision the following segments as relevant product markets: the B- segment, the segment for small cars (A, B, MPV-B), and the composed A-B segment.

Relevant geographic market

(77) The Commission also needs to define the relevant geographic market for the purpose of the assessment of the project under point 68(a) of the RAG.

(78) Point 70 of the RAG 2007-13 stipulates that for the purposes of carrying out the tests under point 68 of the RAG, markets should normally be defined at EEA level.

(79) From a supply side perspective, production in the car sector is at least EEA wide or even global. The major car manufacturers are global players. They have manufacturing facilities and distribution systems in different continents and countries. Fiat Automobiles is at least a European player. IT is selling on all European markets, and the envisaged production of the New Lancia Ypsilon is […].

(80) From a customer perspective, conditions of competition have significantly improved in the EU, in particular as regards technical barriers and distribution systems, although differences in prices and taxation systems are still limiting factors and penetration rates of major competitors differ across Member States and in particular continents. Low transportation costs and the presence of all major manufacturers in almost all Member States and the largest countries worldwide are indicators of an EEA or even worldwide market.

(81) For the purpose of State aid decisions on aid to production facilities, which assess the effects of aid on distortions of competition between manufacturers and on trade between Member States, the manufacturing aspects are decisive.

10 The new model presents characteristics which bring it close to other segments proposed by Global Insight: these segments for which Italy submitted data are the MPV-B segment (sub compact multipurpose vehicle), and the A-segment. In fact, the platform adopted by Fiat for the production of the new Lancia Ypsilon is the “A” platform which is normally used to assembly other small cars such as Fiat 500, Fiat Panda (as well as Ford Ka). Those models belong to the traditional A segment. It is true that the length of the A platform for the new Lancia Ypsilon will be increased to accommodate the specific requirements of the car (3816 mm length). However, the difference in length between the new Lancia Ypsilon and the current Fiat Panda – segment A – is 236 mm, while the difference in length between the new Lancia Ypsilon and the current Fiat Idea – segment MPV-B – is only 114 mm.

(82) Therefore, given that the notified aid concerns manufacturing of a new car, for the purpose of the assessment of the present case, the EEA market is considered as the relevant geographic market.

Market shares

(83) To examine whether the project is compatible with paragraph 68(a) of the RAG, the Commission has to analyse the market share of the aid beneficiary before and after the investment and check if the market share exceeds 25%.

(84) Considering significant differences in production costs and prices of different passenger car, volume data are commonly used in the sector to define markets and markets evolutions. For the purpose of the present decision the Commission will use data provided by the Italian authorities, confirmed by he Global Insight studies. The statistics are based on the registration of cars which can be considered a proxy for apparent consumption11 of cars, assuming that each car sold on the EEA market has to be officially registered.

(85) The beneficiary’s market share is assessed at group level in the relevant product on the EEA market. As the new investment project of Fiat Automobiles started in […] and full production is foreseen to be reached in […], the Commission will examine the market share of Fiat on the relevant market as described above between 2007 and 2012. 2007 2008 2009 2010 2011 2012 Fiat B segment […] […] […] […] […] […] Total 4512487 4.008.726 3.782.755 3.873.790 3.914.199 4.054.689 market Fiat […] […] […] […] […] […] share Fiat A+B […] […] […] […] […] […] Total 5.661.102 5.272.290 5.026.076 5.195.412 5.300.816 5.570.482 market Fiat […] […] […] […] […] […] share Fiat "small cars" […] […] […] […] […] […] Total segment 6.152.320 5.704.417 5.442.743 5.716.129 5.866.934 6.135.190 market (A+B+MPV- Fiat B) […] […] […] […] […] […] share Table 2: Market shares of Fiat Group on the EEA market (in number of cars registered)

(86) On the basis of the above figures, market shares in all plausible alternative markets are below the 25 % threshold on the EEA market.

(87) Therefore, the project is in line with paragraph 68(a) of the RAG.

11 Footnote 62 of the RAG defines "apparent consumption of the product concerned" as "production minus export plus imports".

Production capacity increase exceeding 5% in an underperforming market

(88) The Commission also has to examine whether the investment project complies with paragraph 68(b) of the RAG. It needs to verify whether the capacity created by the project is less than 5% of the size of the market measured using apparent consumption data of the product concerned, unless the average annual growth rate of its apparent consumption over the last five years is above the average annual growth rate of the EEA's GDP.

(89) The Commission should thus first assess if the market is underperforming in the EEA based on the average annual growth rate of the apparent consumption of the product concerned.

(90) Considering that works on the project started in 2008, the Commission has to consider the Compound Annual Growth Rate of the relevant product market on the EEA and of the EEA GDP for years 2002-2007.

(91) The Compound Annual Growth Rate (CAGR) for the year 2002 to 2007 in the EEA for the apparent consumption was of 0.93% in the B segment, of 1.36% in the A+B segment, and of 2.79% for the "small cars" segment.

(92) The CAGR of the EEA's GDP in years 2002-2007 (expressed in constant prices) was of 2.36%.

(93) It can thus be concluded that the CAGR of the apparent consumption in the EEA for the year 2002 to 2007 is below the CAGR of the European Economic Area's GDP for the years 2002 to 2007 for the passenger car segment B and the combined segment A+B.

(94) Because the Commission considered that the passenger car segment B and the combined segment A+B are not growing relative to the EEA's GDP, it performed the second part of the test in point 68 (b), verifying whether the capacity created by the project is more or less than 5% of the size of the relevant segment.

(95) The Italian authorities consider that the total capacity increase resulting from the project will be […] cars per year by […], in addition to the current production capacity of the Termini Imerese plant of […] vehicles/year in the A segment. Thus the total capacity generated by the investment is of […] vehicles per year considering the New Lancia Ypsilon belongs to the passenger car B segment and of […] vehicles per year considering the combined A+B segment.

(96) In 2007 the registration of the B segment passenger cars in the EEA amounted to 4 512 487 and in the combined A+B segment it amounted to 5 661 102 (Global Insight figures). The production capacity increase created by the Fiat Automobiles project in Termini Imerese by […] would therefore represent [1-

3%] of the total EEA market of B segment cars12 and [1-2%] of the combined A+B segment13 as provided for 2007.

(97) In conclusion, for all relevant plausible markets, the CAGR of its apparent consumption over the last five years is above the average annual growth rate of the EEA's GDP or the capacity created by the project is less than 5% of the size of the market.

(98) Therefore, the Commission concludes that the investment project of Fiat Automobiles is compatible with point 68(b) of the RAG.

3.5. Conclusion

(99) The notified aid is in line with the RAG. Consequently, the aid measure is compatible with Article 87(3)(a) of the EC Treaty.

4. DECISION

(100) The Commission has decided, on the basis of the foregoing assessment, that the aid in discounted value of EUR 37 353 980 million in favour of Fiat Automobiles is compatible with the EC Treaty.

(101) The Commission reminds the Italian authorities of their commitment to submit to the Commission a copy of the final relevant acts concerning the aid measure, possible intermediary reports as well as a final report concerning the measure in question. If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://ec.europa.eu/community_law/state_aids/index.htm Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Competition State Aid Greffe B-1049 Brussels Fax No: 32 2 296 12 42

Yours faithfully, For the Commission

12 Taking into account the increased capacity of 120 000 vehicles per year in the B segment, since the old Lancia Ypsilon falls under the A segment.

13 Taking into account only the increased capacity of 35 000 vehicles per year at the production site.

Neelie KROES Member of the Commission