BRUSSELS - The European Commission is not convinced that BMW looked hard enough for an alternative site before accepting a UK grant to rebuild its ailing Rover plant in Longbridge, Eng.
UK authorities have defended the £150 million (euro 228 million, $242 million) grant they gave to BMW.
But the commission says it will investigate whether the subsidy was proper. It said that BMW has not proved that it studied a production site outside the European Union - a prerequisite under EC rules.
BMW threatened to build a new factory in Hungary if it did not receive the full UK grant.
But according to EC officials, authorities in Hungary said they not been consulted by BMW about its plans.
DGIV, the EC's competition arm, begins discussions this week with Britain's Department of Trade and Industry about the BMW grant.
Following approval of the subsidy, BMW promised that the replacement for the Rover 200 and 400 ranges would be built at Longbridge.
In recent years, nearly all automotive aid projects in the EU have been ratified by the commission.
The commission has recently approved state aid for Toyota's plant in Valenciennes, France, Jaguar in the UK and Opel in Germany.
However, a Volkswagen aid package in Germany was disallowed in 1996.
A spokesman for the Department of Trade and Industry said: 'BMW made it clear to us that the agreement we reached in principle was secured against significant competition from Hungary.'
A BMW spokesman would not say where the company looked in Hungary or what incentives were offered.
'We did seriously look at Hungary,' he said. 'To get a grant from the British government you have to have an alternative site outside the EU.'