BRUSSELS (AP) -- European Union regulators said Thursday they would probe plans for Audi to receive a euro49.5 million ($73.19 million) subsidy from the Hungarian government to help the car maker upgrade a factory.
Audi -- the luxury brand of Volkswagen, Europe's biggest car maker -- is Hungary's biggest exporter and employs 5,200 people.
The European Commission said it doubted that Audi needed the payment to invest more in its Gyor plant in West Transdanubia, where it plans to spend some euro511 million to allow it make new generation engines and engine components running from 4 to 12 cylinder gasoline and diesel engines.
Hungary needs EU approval to give the company a direct grant and a tax allowance.
EU rules forbid large government subsidies to companies that would give them an unfair advantage over rivals. They make an exception for investments in poor regions that would not otherwise attract major projects.
Regulators said any benefits to the region may not outweigh the subsidy's potentially harmful affect on competition. They said Audi's large market share may also violate EU state aid guidelines because its sales account for more than 25 percent of passenger cars in some markets.
"We have to verify that the beneficiary genuinely needs the aid to carry out the investment," said EU Competition Commissioner Neelie Kroes.
In 2006, Audi raised the prospect of quitting Hungary after the country implemented a new tax on its profits. It committed to investing more in its Hungarian operations after the government allowed it to deduct research and development costs from its taxable income.
At the time, Audi said it would invest some euro1 billion in Hungary over the next five years. It had already spent some euro3 billion to set up engine-building operations in the country.