EC Approves €112 Million in Aid to Daimler for New Hungarian Plant

Daimler AG now is pushing ahead with plans to build a new production plant in Kecskemet, Hungary, having secured permission from the European Commission to receive €112 million ($157 million) in aid from the Hungarian government.

Plans for the facility, to be named Mercedes-Benz Mfg. Hungary Kft., were announced last year.

The government aid will help Daimler cover the €800 million ($1.1 billion) cost of constructing the plant, which initially will produce the next-generation Mercedes A- and B-Class models. Eventually, four vehicles will be built on the same platform.

The EC approved the funds under regional guidelines that promote economic growth in underdeveloped European Union states. The Del-Alfold area where the plant will be located is a “region with an abnormally low standard of living and high unemployment,” an EC communique says.

In announcing that antitrust rules banning such subsidies in the EU will be waived, European Commissioner for Competition Neelie Kroes says she is “satisfied that Daimler’s market share and the production capacity created by the project are not excessive and that there will be no disproportionate distortions of competition.”

Even with the addition of the new plant, Daimler’s share of the Hungarian and regional market for small family cars and compact multipurpose vehicles is expected to remain less than 25%, significantly below the level that would raise competition concerns, EC officials say.

The new facility also will receive financial support for access to Hungary’s public railway network amounting to some €800,000 ($1.1 million). Daimler will finance the remaining costs by tapping into its own equity, as well as bank loans.