Automotive Assistance Programme Guidance Summary

Overview

The Government ('HMG') has listened carefully to the concerns of the UK automotive industry, and has introduced the Automotive Assistance Programme as a positive intervention to ensure that the current downturn does not derail the investment necessary to secure innovation and change in the industry that will ensure the UK is best placed to exploit the global upturn and to develop low carbon transport.

The Automotive Assistance Programme (AAP) is a support package that aims to unlock up to £2.3bn in loan guarantees, and exceptionally loans to the UK automotive sector. Programme support through the Temporary State Aids framework is available up to end December 2010. The final maturity dates of such loan guarantees and loans can extend beyond 2010. HMG loans may be provided under the AAP in exceptional circumstances.

AAP Objectives

AAP is aimed at automotive companies hit by the recession and facing difficulties in financing new investment. The aim of AAP is to ensure continued investment by these companies in:

• Development of cutting-edge green technologies that can contribute to CO²reduction, and a low carbon future for the industry;
• Advancement of research and development (R&D) in UK vehicle manufacturing;
• Creating and sustaining jobs

What companies are eligible?

• The scheme will support companies in the UK Automotive Sector - manufacturing and supply chain.
• The AAP was established to deliver significant investment in the sector and eligible companies would normally feature
  • annual turnover in excess of £25m recorded in their last published annual report and accounts, and
  • a proposed project investment of usually more than £5m
• However, cases below these financial limits will be considered on an individual basis, with proposed investments of £1m being the minimum investment threshold. Companies who do not meet this financial criteria may find another scheme more appropriate, details of which can be found on the Real Help Now website.
• An eligible company would need to demonstrate that
  • Their business and the proposed project are viable
  • They have been unable to access funding from the private sector
• All supply chain companies will need to demonstrate
• that they are established suppliers to the sector;
• that a significant proportion of their current business relates to supply to the automotive industry; and
• the project for which support is being sought links directly to the reduction of carbon emissions and the advancement of research and development.

Assessment of applications

Applications to the AAP will be assessed in terms of:

• ‘Additionality’; ie. the project would not happen without HMG support;
• Wider economic and social benefits (for example, spillover benefits to the industry as a whole) must be greater than any HMG support involved in giving a guarantee or loan;
• Tests to demonstrate overall value for money to the taxpayer – viability, due diligence, challenge of assumptions, associated sensitivities and negotiation;
• Legal compliance with both domestic law and with European State Aid law;
• Consistency with UK objectives on low carbon/ ‘green’ technology;
• A positive market and technical analysis indicating a probable success with the project in market and technological terms;
• Strategic considerations of project and company within industry & region;
• A UK based investment creating or safeguarding jobs;
• A fee to be charged at commercial rates or discounted as appropriate under Temporary Framework methodology, such fee being partly dependent upon the security available to HMG.

Further details on these criteria, as well as a summary of the European Commission Temporary conditions for state aid framework, can be found in the Frequently Asked Questions.

Next Steps

A company who wishes to participate in the programme, and who has assessed that they meet the criteria set out in the guidance, should raise an initial expression of interest in the scheme.

The initial expression of interest is a high level business case and should include a synopsis of the project or initiative planned, and the level and type of financial support being sought. It should cover the following areas:

Banking Support	Financial Information
Evidence of bank support applied for Terms of bank support proposed	Financial reports and internal business plans relating to the project Asset security or parental guarantee that would be pledged to back up any government support, estimated valuation and priority of security
Incentive Effect	Basic project details
Why the applicant is making the applicationfor support under the scheme What the situation would be with regard to the project/business if an HMG guarantee was not provided, and evidence of same	Project location (incl. postcode) Number of jobs created or safeguarded by project, type of job in terms of salary and skill level How project will deliver reduced carbon emissions and by how much Split of functional project spending i.e. between research & development, capital expenditure, land and building cost, staff costs, training costs, etc. Technical and market feasibility Any other particular features of interest, e.g. high innovation

 

Please note that this is not an exhaustive list – AAP Unit will expect to hold clear and comprehensive dialogues with applicants and request relevant further information as needed.

To register your initial expression of interest, please email the Automotive Assistance Programme Unit at the Department for Business, Innovation and Skills (BIS):berr.auto@bis.gsi.gov.uk

Please ensure that you provide the following details:

• Business name and address in full
• Email
• Telephone
• Full name of point of contact

Further advice is contained in theFrequently Asked Questions (FAQ) section immediately following this programme outline (below).

The Full Original Programme Guidance published at Launch on 11 March 2009 is still online.

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Automotive Assistance Programme: Frequently Asked Questions (FAQs)

Index

1. What companies are covered under the “UK Automotive Sector”?

2. How will the applications be assessed?

3. What percentage of a loan will the UK scheme guarantee?

4. Are there limits on the amount of support a company can apply for?

5. Can a company that has already bid successfully apply for a second time?

6. Can more than one company apply as part of a joint venture/project?

7. Will there be a fee for the scheme?

8. If a project meets the criteria, will it automatically qualify for a loan or loan guarantee?

9. Under what circumstances will you provide direct loans?

10. What costs can be included in a bid qualifying for a loan guarantee?

11. What costs can be included in a bid for a loan?

12. What are the European Investment Bank (EIB) criteria for loans?

13. Why is the Government considering offering EIB-related guarantees?

14. Will the Government automatically provide guarantees for loans made to UK companies by the EIB?

15. What are the financial criteria for guarantees or loans?

16. What are the European Commission conditions under the Commission State Aid temporary framework, and how do they differ between loans and loan guarantees?

17. What is 'additionality'?

18. Where can I find further information?

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Automotive Assistance Programme: FAQs Answered

1. What companies are covered under the “UK Automotive Sector”?

For the purposes of this scheme, the “UK Automotive Sector” is defined as:

Manufacturers of, and suppliers to manufacturers of:

• cars, vans and light commercial vehicles
• buses and coaches
• mobile construction equipment and agricultural tractors
• motor homes

that are in the UK or propose to become so (e.g. a new investor in the UK).

To qualify, products manufactured must be:

• designed for regular road use, and
• must move under their own system of propulsion

Furthermore, companies would usually show

• turnovers in excess of £25m recorded in their last published annual report and accounts, and
• a proposed project investment of ideally £5m with £1m minimum.

However, all casesare considered on an individual basis.

Suppliers will need to demonstrate that they are established suppliers to the sector and that a significant proportion of their current business relates to supply to the automotive industry, and that the project for which they are seeking support links directly to the reduction of carbon emissions and the advancement of research and development.

For the avoidance of doubt, the following sectors are ineligible:

Manufacturers of, and suppliers to manufacturers of:

• agricultural and gardening equipment, with the exception of agricultural tractors
• golf carts, buggies and similar vehicles not designed for regular use on public roads
• motorcycles and other 2- and 3-wheeled vehicles
• quad bikes

Unless they are also suppliers to 'the UK Automotive Sector' (as defined above) and the application relates to a project to supply 'the UK Automotive Sector'.

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2. How will the applications be assessed?

Applications are determined against the criteria and assessed on a case-by-case basis. Scrutiny is undertaken by our multi-disciplinary team with the support usually of external expert support.

Final scrutiny will usually be undertaken by the statutory Industrial Development Advisory Board (IDAB) which is an independent non-governmental body of senior businesspeople constituted to advise Ministers on important industrial and business decisions for HMG.

The issues to be considered under either scrutiny process include:

• ‘Additionality’, i.e. it is a project that, without HMG support, would not happen
• The wider economic and social benefits (for example, spillover benefits to the industry as a whole) must be greater than any HMG support involved in giving a guarantee or loan;
• Overall value for money to the tax payer – viability, diligence challenge of assumptions, sensitivities, negotiation (see separate financial diligence sheet) – demonstrated through extensive H.M. Treasury ‘Green Book’ tests
• Legal compliance with both domestic law and with European State Aid law
• Consistency with UK objectives on low carbon/ ‘green’ technology
• A positive market analysis indicating a probable success with the project in market and technological terms
• Strategic considerations of project and company within industry & Region
• A UK based investment creating or safeguarding UK jobs
• A fee to be charged at ‘commercial rates’ with due regard to security that might be available to HMG.

Technology Criteria

Applicants must provide information about how innovation will deliver reduced carbon emissions:

Proposals relating to vehicle production

Proposals relating to vehicle use

How the production process(es) will reduce carbon emissions, reduce the use of hazardous substances, and/or improve resource efficiency How the new process(es) will Adopt renewable energy sources Minimise heat loss Provide more efficient water use Introduce water-based/low solvent emission paint technologies Reduce exposure to hazardous substances Increase recycling of waste materials from production What contribution the new technology will make to reducing carbon emissions over the life cycle of the vehicle The research & development requirements of the project, including what stages for which support is sought (basic, applied, demonstration)

How the project will ensure compliance with, or exceed the requirements of, the European regulations1on vehicle carbon emissions and air quality How the technology will deliver lower carbon emissions (for example, through innovation in vehicle design or engine technology) The technology’s wider market potential, including what contribution it will make to vehicle sales What contribution the new technology will make to reducing carbon emissions over the life cycle of the vehicle The research & development requirements of the project, including what stages for which support is sought (basic, applied, demonstration)

Further details on these criteria, as well as a summary of the EC Temporary conditions for state aid framework, can be found elsewhere in the Frequently Asked Questions.

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3. What percentage of a loan will the UK scheme guarantee?

Assuming the project meets the criteria for the scheme, the proportion of any loan guarantee will be assessed on a case-by-case basis according to credit risk assessment and also evidence as to the level of guarantee needed by the company to secure lending. As a general rule the Government would not expect to guarantee more than 75% of any loan, and is only permitted to guarantee up to 90% of any loan under the current temporary State Aid framework.

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4. Are there limits on the amount of support a company can apply for?

Projects would ideally be for more than £5m. However, cases below these financial limits will be considered on an individual basis, with proposed investments of £1m being the minimum investment threshold. Companies who do not meet this financial criteria may find another scheme more appropriate, details of which can be found on theReal Help Now website. The Government, however, considers all applications on a case-by-case basis. Applicants seeking funding for projects for which they deem themselves suitable should contact the Automotive Assistance Programme Unit with an initial expression of interest as a focal point for initial discussion.

There is no upper limit on the amount a company can apply for, but in principle the Government would hope to see a reasonable spread of funding support across the industry.

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5. Can a company that has already bid successfully apply for a second time?

In principle, yes – all applications will be assessed on a case-by-case basis. However, the Government would hope to see a reasonable spread of funding across the industry, and would want to be convinced that additional support for a particular company was strongly justified.

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6. Can more than one company apply as part of a joint venture/project?

Yes, as long as the project meets the criteria and is a genuine joint project for work in the UK. All applications will be assessed on a case-by-case basis.

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7. Will there be a fee for the scheme?

Yes. The Government will charge an appropriate fee or interest rate to reflect the administrative costs and expected risk involved, with the aim of ensuring that the Government achieves good commercial value.

The actual fee or rate will be set on a case-by-case basis, and must comply with State Aid law. The Government is prepared to use the flexibilities available under the 'Temporary Community framework for State Aid measures to support access to finance in the current financial and economic crisis' in arriving at the appropriate fee or rate for the loan guarantee or loan.

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8. If a project meets the criteria, will it automatically qualify for a loan or loan guarantee?

No – all applications will be assessed on a case-by case basis with regard to how they meet the scheme’s objectives, provide value for money to the taxpayer, and in respect of the credit risks assumed by the Government if it were to provide support to the company. The Government will also need to see evidence and be satisfied that arrangements are in place to ensure any UK support provided can and will be ring-fenced within the UK.

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9. Under what circumstances will you provide direct loans?

All applications will be assessed on a case-by-case basis. The Government would expect to offer loan guarantees rather than loans. However, loans may exceptionally be offered where appropriate under this scheme.

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10. What costs can be included in a bid qualifying for a loan guarantee?

Eligible costs include:

• Research & development (basic research, applied research, and/or demonstration)
• Capital expenditure linked to the project and the project’s duration
• Elements of working capital to facilitate project implementation
• Staff costs linked to the project
• Training costs linked to the project
• Recoverable indirect taxes are excluded

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11. What costs can be included in a bid for a loan?

Loans may cover the costs of investment in tangible and intangible assets as defined in point 70 of the Community guidelines on State aid for environmental protection and point 4.5.2(e) of theEuropean Commission Temporary Framework for State Aid measures.

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12. What are the European Investment Bank (EIB) criteria for loans?

The EIB European Clean Transport Facility (ECTF) is a financing programme to support investments in emissions reduction and energy efficiency in the European transport industry.

The ECTF is, in principle, open to automotive companies of any size and ownership, or both investment and sub-investment grade credit ratings (or equivalent), that are committed to an eligible project (see below) in the European transport industry. However, in practice, the ECTF is targeted at supporting major projects by larger companies and will not normally lend less than €50m per project.

Eligible projects for the ECTF include:

• Research, development and innovation targeting emissions reduction
• Innovation, prototyping, new tooling, upgrading of either existing or new production facilities that:
• Do not result in a net capacity increase; and
• Target EU 2012/2020 CO2 passenger vehicle emission requirements and other emission/fuel efficiency objectives in the transport sector, as well as complementary measures aimed at achieving the ECTF objectives.

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13. Why is the Government considering offering EIB-related guarantees?

The EIB will normally require a proportion of lending to sub-investment grade companies to be guaranteed by a third party. The Government recognises that such companies may struggle to obtain a guarantee under current credit market conditions, and may therefore consider providing a proportion of this guarantee, if there is evidence that the company has been unable to find support from a third party guarantor. All applications will be assessed on a case-by-case basis.

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14. Will the Government automatically provide guarantees for loans made to UK companies by the EIB?

No, there will be no automatic guarantee. All applications will be assessed on a case-by-case basis. The Government will need to prioritise AAP support for companies and projects to reflect both the minimisation of risk to the taxpayer, and how best to meet the scheme criteria. The Government would hope, however, to increase funding available to UK companies through working with the EIB.

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15. What are the financial criteria for guarantees or loans?

As noted above, guarantees may potentially be provided to support the following investment areas directly linked to the project:

• Research & development (basic, applied, and/or demonstration)
• Capital expenditure
  • e.g. investment in new production facilities, new materials, prototyping, tooling, land and building costs – but in all cases linked both to the project and the projects duration
• Staff costs linked to the project
• Training costs linked to the project
• Recoverable indirect taxes are excluded.

The applicant must provide evidence of having exhausted private sector sources before seeking either a guarantee or a loan. An applicant would normally be expected to have a lender willing to provide a loan in conjunction with an HMG loan guarantee. In general, the Government expects to offer loan guarantees rather than direct loans, to share risk upon behalf of the taxpayer and extend levels of support.

Applicants seeking loans must demonstrate why the project cannot be financed on the basis of a Government guarantee or a third party loan, and ensure their project is in line with EU Commission conditions for loans.

Applicants must also give details and demonstrate how and when the guarantee/loan will no longer be required or be repaid.

The applicant must meet the minimum criteria for theEuropean Commission Temporary Framework for State Aid measures, under which this scheme is provided.

The Government is likely to require part or all of any guarantee/loan to be secured against the applicant’s assets and/or those of a parent company (where applicable), depending on the risk to the taxpayer. The applicant must provide a summary of assets, including their current value, that are available to provide security.

The Government will charge an appropriate fee or interest rate to reflect administrative costs and expected risks involved, and with the aim of ensuring that the Government achieves good commercial value. The actual fee or rate will be set on a case-by-case basis and must comply with State Aid law.

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16. What are the European Commission conditions under the Commission State Aid temporary framework, and how do they differ between loans and loan guarantees?

The European Commission temporary framework conditions for state aid were established:

• To unblock bank lending to companies and thereby guarantee continuity in their access to finance, in light of the exceptional and transitory financing problems linked to the banking crisis; and
• To encourage companies to continue investing in the future, in particular in a sustainable growth economy

The conditions are on the basis of Article 87(3)(b) of the EC Treaty. All applicants and projects must demonstrate clearly that they meet these conditions.

The conditions for loan guarantees offered under the Temporary State Aids framework by the AAP are covered under 'Aid in the form of guarantees'. The key points are:

• The maximum loan does not exceed the total annual wage bill of the beneficiary (including social charges as well as the cost of personnel working on the company site but formally in the payroll of subcontractors) for 2008 ;
• The guarantee does not exceed 90% of the loan, for the duration of the loan;
• The guarantee may relate to both investment & working capital loans;
• The guarantee is granted before 31 December 2010 at the latest; The guarantee is granted to firms which were not in difficulty on 1 July 2008; it may be granted to firms that were not in difficulty at that date but entered in difficulty thereafter as a result of the global financial and economic crisis
• The company must not be in financial difficulty. A company is deemed to be in financial difficulty whereby: (a) more than half of its capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months; OR (b) it is subject to insolvency proceedings; OR (c) the usual signs of a firm being in difficulty are present.

This is not an exhaustive list. The full details of the Commission conditions under the Temporary State Aid framework may be viewedhere

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17. What is 'additionality'?

The Government needs to be sure that it grants guarantees or loans where this will genuinely make the difference between the project happening or not, and where the support will genuinely influence the quality or scale of the activity. The provision of support can only be considered value for money if it passes this 'additionality' test.

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18. Where can I find further information?

The Original Programme Guidance as at 11 March 2009 is still online.

The AAP scheme was launched at the 'Open for Business' Seminar on 11 March 2009 and presentations explaining the workings of the Automotive Assistance Programme, and these relevant slides can be accessed here:

Automotive Assistance Programme - Open for Business presentation(129KB)

Providing the green credentials for your business case - Cenex presentation(277KB)

The Business and Enterprise Select Committee issued a report on the scheme, and the Government has responded. These documents can be accessed here:

Business & Enterprise Select Committee's report 'The Automotive Industry in the UK' (Parliament website)

Government's response to Business & Enterprise Select Committee's 'The automotive industry in the UK' report [Cm 7706](345KB)

If your question is not covered in the Frequently Asked Questions, or you would like to register an initial expression of interest in the scheme, then please contact the Automotive Assistance Programme Unit at the Department for Business, Innovation and Skills:berr.auto@bis.gsi.gov.uk.

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1  These include, where applicable: EU CO2 regulations on cars and vans; Euro 6 regulations on cars (air quality); Euro V/VI regulations on HGVs (air quality); European Directive 2004/26/EC (construction equipment sector) [ Back ]

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