Automotive assistance programme - archive

Open for Business

The Automotive Assistance Programme (AAP) is 'Open for Business'.

The advice and guidance shown below is designed to inform and assist businesses assess themselves against the eligibility criteria.

Eligible companies: an initial expression of interest can be raised that should also include a short overview covering the criteria and how they are met, a synopsis of the project or initiative under planning, and the level and type of financial support being sought. This should be sent electronically to the email address identified at the close of the guidance.

Guidance

What is the purpose of this scheme?

The Government has been listening carefully to the concerns of the UK automotive industry.

New investment is vital to ensure that the industry emerges from the current downturn with the skills and technology base needed to be competitive in the global automotive market and to develop lower carbon transport.

The primary aim of this package is to support the continued delivery of that investment - investment that will create or sustain jobs, develop cutting-edge technology, bring special value to the UK, reduce CO² emissions and maintain R&D in UK vehicle manufacturing.

What types of companies can in principle apply ('eligible companies')?

To be eligible to apply, viable companies must come within the following sectoral definitions and fulfil certain investment project criteria (described below).

- 'the UK Automotive Sector', defined as manufacturers of cars, vans and commercial vehicles, buses and coaches, mobile construction equipment and agricultural tractors, and motor homes (to qualify, products manufactured must be designed for regular road use and must move under their own system of propulsion) that are in the UK or who would propose to become so (e.g. a new investor in the UK) with a turnover of at least £25m recorded in their last published Annual Report and Accounts and with a proposed investment of at least £5m.

- 'the UK Automotive Supply chain', defined as direct or indirect (through other suppliers) suppliers of components/parts (for finished vehicles) to manufacturers of cars, vans and commercial vehicles, buses and coaches, mobile construction equipment and agricultural tractors, and motor homes (to qualify, products manufactured must be designed for regular road use and must move under their own system of propulsion) that are in the UK or would propose to become so (eg. a new investor in the UK) with a turnover of at least £25m recorded in their last published Report and Accounts and with a proposed investment of at least £5m.

Suppliers will need to demonstrate they are established suppliers to the sector, 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 reducing carbon emissions from vehicles/vehicle manufacturing processes.

Ineligible sectors include (for the avoidance of doubt):

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
• quadbikes

Suppliers to manufacturers of -

• agricultural and gardening equipment,
• golf carts, buggies and similar vehicles not designed for regular use on public roads
• motorcycles and other 2 and 3 wheeled vehicles
• quadbikes

unless they are also suppliers to 'the UK Automotive Sector' and their application relates to a project to supply 'the UK Automotive Sector'.

What types of projects can in principle be considered?

• Investments for which European Investment Bank (EIB) lending has been approved under the Bank’s European Clean Transport Facility and for which the EIB may require a proportion of its loan to be guaranteed (although EIB approval for a project which requires a third party guarantee does not automatically mean that a UK Government guarantee will be provided and all applications will be assessed on a case-by-case basis).
• Investments not eligible for European Investment Bank support (eg. because the projects are too small) but which will bring special value to the UK (eg. through the creation or preservation of jobs and investment or which introduce key technologies to the sector).
• Projects that are consistent with the Government’s objectives for the low carbon economy and which contribute towards meeting environmental and energy efficiency targets, reducing fuel consumption, reducing CO² emissions and achieving higher environmental protection standards (either in the production of finished vehicles, in the production of components of vehicles or in the manufacturing process itself).
• Projects that deliver demonstrably new activity and investment that would not otherwise happen without the provision of Government support.

What percentage of a loan will the UK scheme guarantee?

Assuming a project meets the criteria for the scheme, the proportion of any loan guaranteed will be assessed on a case-by-case basis, according to credit risk assessment and also evidence as to the level of any guarantee needed by the company to secure EIB or non-EIB lending. As a general rule, HMG would not expect to guarantee more than 75% of any loan.

If a project meets the criteria, will it automatically qualify for a loan/loan guarantee?

No. All applications will be assessed on a case-by-case basis both with regard to how they meet the scheme’s objectives, provide value for money to the taxpayer and in respect of the relative credit risk exposure to the Government if it were to provide support to the company that is seeking financing of the project. 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.

Under what circumstances will you provide direct loans?

All applications will be assessed on a case-by-case basis. In general however, HMG would expect to offer loan guarantees rather than loans. However, HMG may exceptionally wish to offer loans where appropriate under this scheme.

Are there limits on the amounts a company can apply for?

Projects must be for a minimum value of £5m. 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.

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

Eligible costs include the following:

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

In assessing bids the Government will 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”.

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 the temporary framework http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:016:0001:0009:EN:PDF

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

In principle, yes, but the Government would hope to see a reasonable spread of funding across the industry and would want to be convinced additional support for a particular company was strongly justified.

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

Yes, but only if this is a genuine joint project for work in the UK. Joint projects designed to increase the value of a bid (to ensure it meets the minimum £5m project value) will not be accepted.

Why is HMG 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. If there is evidence that other third party guarantors are not able to provide support, the Government may therefore, on a case-by-case basis, consider providing a proportion of this guarantee.

Will HMG automatically provide guarantees for loans made to UK companies by the EIB?

No, there will be no automatic guarantee. While the Government would hope, through working with the EIB, to increase funding available to UK companies, UK support is not unlimited. The Government will need to prioritise support for companies and projects to reflect both the minimisation of risk to the taxpayer and how best to meet scheme criteria.

What are the European Investment Bank criteria for loans?

The EIB’s European Clean Transport Facility is primarily focused on supporting large energy efficiency projects in the automotive sector.

Companies may seek funding for projects to reduce vehicle emissions and/or projects to green their manufacturing processes.

The EIB facility is open to applicant companies of any size and ownership – and whether investment grade or sub-investment grade – that are committed to an eligible (see below]) investment programme in the European transport industry in the period 2009-2012.

All parts of the automotive supply chain are eligible to apply, including Tier 1 and Tier 2 suppliers.

The EIB will provide loans for up to 50% of the capital expenditure and training costs of a project, and up to 75% of the R&D costs.

Eligible investments include:

• tangible and intangible expenditures on research, development and innovation
• innovation, prototyping and/or new tooling
• upgrading of existing/new production facilities that do not result in a net capacity increase and that target EU2012/2020 CO2 passenger vehicle emission requirements

How do the European Commission conditions under the Commission State aid temporary framework differ for loans as opposed to loan guarantees?

Conditions covering loans (aka ‘aid for green products’)

1. The loan must finance new products which significantly improve environmental protection; and
2. The loan must normally be necessary for launching a new project; and
3. The loan may be granted only for projects producing products involving early adaptation to or going beyond future Community environmental standards1 ; and
4. The loan may cover the costs of investment in tangible and intangible assets with the exception of loans for investments which account for production capacities of more than 3 % on product markets where the average annual growth rate, over the last five years before the start of the investment, of the apparent consumption on the EEA market, measured in value data, remained below the average annual growth rate of the European Economic Area's GDP over the same five year reference period; and
5. The loan may not be granted to firms that were “in difficulty” (as defined by the view of the European Commission) before 1 July 2008.

Conditions covering loan guarantees

1. The maximum loan to be guaranteed must 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. In the case of companies created on or after 1 January 2008, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation; and
2. Guarantees must be granted by no later than 31 December 2010; and
3. The guarantee must not exceed 90 % of the loan; and
4. The guarantee may relate to both investment and working capital loans; and
5. The guarantee may not be granted to firms that were “in difficulty” (as defined by the view of the European Commission) before 1 July 2008.

All applicants and projects must clearly demonstrate that they meet these European Commission conditions. Guarantees must be granted before 31 December 2010 and, generally speaking, the reduction in the premium payable will only last for a period of two years from the date of the guarantee.

Will there be a fee for the scheme?

Yes. The Government will charge an appropriate fee or interest rate to reflect HMG’s administrative costs and expected risk 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. 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/loan.

Future changes to the scheme

The Government may continue to update this guidance and criteria in the light of questions received and further information becoming available.

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Application Criteria

Market and Economic Criteria

In assessing applications a determination will be made on whether the Government’s support represents value for the use of public money.

Financial reports and internal business plans containing information on demand forecasts; cost forecasts; financial forecasts, documents that are submitted to an investment committee and that elaborate on various investment scenarios and/or documents provided to the financial markets by applicants are all likely to be helpful in assessing both 'additionality' and economic benefits as outlined below.

Additionality

The Government needs to be sure that it grants guarantees or loans where this genuinely makes the difference between the project happening or not, or whether the support genuinely influences the quality or scale of the activity. Provision of support can only be value for money if it passes this “additionality” test.

In assessing additionality, the following will be taken into account:

1. Counterfactual analysis: assessment of an application will seek to understand how the firm’s activity would be different with and without this guarantee or loan. The difference between the two scenarios is considered to be the impact of the aid measure and describes the incentive effect of the guarantee or loan.
2. Level of profitability: if a proposal would not, in itself, be profitable to undertake for a private undertaking, but would generate important benefits for society, it is more likely that the guarantee will have an incentive effect. To evaluate the overall profitability, analytical methods used might include evaluating the Net Present Value (NPV), the internal rate of return (IRR) and/or the return of capital employed (ROCE) on the project.
3. Amount of investment and time path of cash flows: high start-up investment costs, limited appropriable cash flows and a significant fraction of cash flows arising in the very far future should be considered positive elements in assessing the additionality of an award under AAP.
4. Level of risk involved in the proposal – support is less likely to be additional where the proposal is low risk

Economic Benefits

All proposals should contribute positive benefits to the economy. This means that the value of the tangible and intangible benefits must exceed the level of subsidy provided by the guarantee or loan. The net economic benefit of the proposal will be calculated drawing on the financial information for the proposal and market analysis.

Where there may be wider benefits not captured within the firm’s own data, these will also be assessed, they are likely to include:

1. Research and Development activity: Often, where research and development is undertaken the benefits of the activity spread beyond the firm that invested. The assessment of economic benefits will take into account information from the applicant about their research and development plans to judge whether there may in fact be wider economic benefits. In this case, such benefits are likely to be priced in line with the EC R&D&I framework.
2. General training: Where a firm invests in training, the benefits of improving the skills level of the workforce can be felt beyond the firm. Where this may be the case, such benefits are likely to be priced in line with the EU General Block Exemption training aid guidelines, so applicants will need to state whether they have training plans as part of their proposals.

In addition, an assessment will be made of whether the support represents value for money in terms of the employment created or safeguarded. The applicant should provide details of the jobs that (a) will be created and/or (b) will be safeguarded as a result of the proposal going forward. This should include details of both the skills and salary levels of the jobs created or safeguarded. In determining value for money, the level of deprivation and local labour market conditions will also be taken into account.

Technology Criteria

Applicants must provide the following information about their proposed projects covering how innovation will deliver reduced carbon emissions:

1. Is the proposal related to vehicle production? If yes, please provide details of how the new production process(es) will reduce carbon emissions, reduce the use of hazardous substances, and/or improve resource efficiency. Where relevant, please explain 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.

2. Is the proposal related to vehicle use? If yes, please provide details of how the project will ensure compliance with, or exceed the requirements of, the following European regulations on vehicle carbon emissions and air quality (where applicable):

• EU CO² regulations on cars
• EU CO² regulations on vans
• Euro 6 regulations on cars (air quality)
• Euro V/VI regulations on HGVs (air quality)
• European Directive 2004/26/EC (construction equipment sector)

3. For proposals related to vehicle use, please provide details of the technology that will deliver lower carbon emissions; for example, through innovation in vehicle design or engine technology.

4. For proposals covering both vehicle production and vehicle use, please provide a summary assessment of the contribution which the new technology will make to reducing carbon emissions over the life cycle of the vehicle.

5. For proposals covering both vehicle production and vehicle use, please provide an assessment of the research and development requirements of the project, including the R&D stages for which support is sought [basic, applied and/or demonstration].

6. For proposals covering both vehicle production and vehicle use, please provide details of opportunities for suppliers to contribute to the project, both in terms of intellectual property and manufacturing opportunities.

7. For proposals covering vehicle use, please provide an assessment of the technology’s wider market potential. What contribution will it make to vehicle sales?

Financial Criteria

1. Guarantees may potentially be provided to support the following investment areas directly linked to the project:

• Research & development (basic research, applied research and demonstration)
• Capital expenditure – e.g. investment in new production facilities; new materials; prototyping; tooling; land and building costs – but in all cases linked to the project and the project’s duration
• Staff costs linked to the project
• Training costs linked to the project

Recoverable indirect taxes are excluded.

2. The applicant must provide evidence of having exhausted private sector sources before seeking either a guarantee or loan eg. evidence that a bank/banks have refused to fund. In general, HMG would expect to offer loan guarantees rather than direct loans to minimise the risk to the tax payer. 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. It must also give details and demonstrate how and when the guarantee/loan will no longer be required/repaid.

3. In accordance with the European Commission’s Temporary State Aid Framework, under which this support scheme is provided, the following conditions as a minimum must be met and we would ask applicants to provide evidence demonstrating²:

• that the company is viable and, in particular, was not a “firm in difficulty” before 1 July 2008 according to the EU Commission’s view of what constitutes a “firm in difficulty” . The EU Commission regards a firm as being “in difficulty” in where it has lost more than half its capital, and more than a quarter of it over the previous 12 months.
• That the maximum guarantee or loan sought does not exceed the total annual wage bill of the applicant (including social charges and the cost of on site subcontractors) for 2008.
• Under the current EU Commission’s Temporary State Aid Framework, guarantees or loans must be granted by no later than 31 December 2010.
• Loans must be specifically linked to projects that involve early adaptation to or go beyond future European Community product standards on environmental protection.

The applicant should provide evidence that their application meets the above conditions, particularly on viability.

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

5. The Government will charge an appropriate fee or interest rate to reflect HMG’s administrative costs and expected risk 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. 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/loan.

Register an Expression of interest if you meet the criteria

In the first instance, please email the Automotive Unit at the Department for Business, Enterprise and Regulatory Reform ( bis.auto@bis.gsi.gov.uk ) to register an expression of interest. Information updates will be published as they become available.

Do ensure that you provide the following details - business name and address in full, email, telephone and full name of point of contact.

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Automotive Assistance Programme 'Open for Business' Seminar 11 March 2009

Held at the Department for Business and Regulatory Reform*

The Seminar was opened by the Economic and Business Minister, Ian Pearson.

The seminar was attended by automotive manufacturers and supply chain businesses, together with representatives from the major clearing banks and other stakeholders.

The presentations made were designed to explain the workings of the Automotive Assistance Programme and the 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)

* BERR changed to BIS, June 2009

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Next Steps

A company that wishes to participate in this programme should review the published guidance as indicated and assess as to whether they meet the criteria. The starting point being whether the business has sales in excess of £25m and plans a new project investment in excess of £5m, and is part of the Automotive sector. The one or two page expression of interest is in effect, an executive summary identifying how the business meets the published guidance. The requirements for an initial expression of interest are shown below.

The Automotive Assistance Programme (AAP) initial expression of interest

Eligible companies (in 'the UK Automotive Sector' or 'the UK Automotive Supply chain') can raise an initial expression of interest that should include a short overview covering a synopsis of the project or initiative under planning, and the level and type of financial support being sought. This should be sent electronically to the email address identified below.

The synopsis should cover the following areas:

Banking Support

• Evidence of bank support applied for
• Terms of bank support proposed

Financial Information

• Financial reports and internal business plans relating to the project
• Assets or a parental guarantee that would be pledged to back up any government support, and estimated valuation and priority of pledges

Incentive effect

• Why the applicant is making the application for support under the scheme
• What the situation would be with regard to the project/ business if a guarantee was not provided and evidence of the same

Project details - basic details relating to the project, i.e.:

• Project location (including postcode)
• Number of jobs created or safeguarded by project, and type of job in terms of salary level
• How project will deliver reduced carbon emissions, in what way and by how much
• Split of functional project spending, i.e. between research & development, capital expenditure, land and building costs, staff costs, training costs, etc.
• Technical and market feasibility
• Any other particular features of interest, i.e. high innovation

Please note this is not an exhaustive list as we will need to request further information and enter into a dialogue to complete a transparent and even-handed process.

To register an initial expression of interest, please email the Automotive Unit at the Department for Business, Enterprise and Regulatory Reform ( bis.auto@bis.gsi.gov.uk ). Do please ensure that you provide the following details - business name and address in full, email, telephone and full name of point of contact.

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1 'Future Community product standard' means a mandatory Community standard setting environmental levels to be attained for products sold in the Community which has been adopted, but is not yet in force.

2 This is not an exhaustive list. Full details of the Commission conditions covering Member State guarantees or loans to companies under the Temporary State Aid framework may be viewed on the Commission website http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:016:0001:0009:EN:PDF

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