Ford Romania Loan Approval Highlights Shift in EU Policy

What a difference a year makes.

A European Commission decision Friday to OK government guarantees backing a €400 million ($600 million) loan to Ford Romania SA casts new light on the European Union’s changing posture on public subsidies to auto makers.

In a close vote (13-11), the commission puts its stamp of approval on the loan from the European Investment Bank – the EU’s largest public financing institution – underwritten by the Romanian government. The funding will help finance low-emission engine and vehicle production at Ford’s Craiova, Romania, plant.

The EIB also will be lending €200 million ($300 million) directly to Ford Werke GmbH in Germany to assist in the project.

Total cost of the product program is estimated at €1 billion ($1.5 billion). Ford is expected to tap the EIB loans between now and 2014.

The EU’s decision to approve the transaction comes some 14 months after a formal state-aid inquiry was launched by Brussels into a planned €57 million ($85 million) training program subsidy offered by the Romanian government.

The commission launched the investigation – which remains open – because it feared the subsidy violated EU state-aid laws designed to prevent member countries from providing unfair assistance to protect critical national industries from competition.

At the time, EU Competition Commissioner Neelie Kroes declared: “The Commission supports training that improves the skills of the workforce. However, we must make sure that public funds really lead to additional training and do not just pay for…normal operational costs.”

But with Europe’s auto sector fighting for survival amid the industry’s worst slump in 50 years, more relaxed temporary guidelines were approved in December, clearing the way for the EU to get onboard with the larger, state-backed EIB financing for Ford Romania.

Kroes now puts a more positive spin on the state-aid package, saying it “should contribute to Ford's trans-European investment project for environmentally friendly cars without giving rise to undue distortions of competition.”