With production expanding, heightened foreign interest and a new push to build a domestic car brand, the automotive sector in Turkey is currently experiencing a surge in output. This comes as the country has established itself as a natural base for supplying both European and Middle Eastern markets, with the sector’s contributions to exports being of major importance to the economy as a whole.
At the same time, economic growth, credit expansion and an improving transport infrastructure – combined with a growing young population – have also made Turkey’s domestic market a significant advantage for the companies now based there. The year ahead is thus likely to bring some major new foreign investments, as well as some significant steps toward the development of local automotive products and services, including more locally based research and development (R&D) projects.
PLAYERS AND PEDIGREES: Automotive production under licence has been present in Turkey since the 1950s, with Ford, Renault and Fiat being the longest-standing international players. Each of these firms has formed a joint venture with local investors: Ford Otosan, which mainly produces light commercial vehicles; Oyak-Renault, which makes passenger cars; and Tofaş, a partnership of Fiat and Koç Holding producing passenger cars and light commercial vehicles (LCVs). Toyota produces passenger vehicles in the country, while a fifth manufacturer, Hyundai Assan – a joint venture between Hyundai and Kibar Holding – has also gained ground recently.
These five joint ventures were responsible for 93% of all vehicles (excluding tractors) manufactured in Turkey during the first two months of 2012, according to data from the Turkish Automotive Manufacturers Association (OSD). With regard to the total number of units produced, Oyak-Renault manufactured 30.8% of the 178,918 vehicles produced in that period, followed by Ford Otosan (25.9%), Tofaş, (20.21%), Toyota (8.27%) and Hyundai Assan (7.9%).
SMALLER FIRMS: The remaining 7% of output was divided between eight other manufacturers: passenger car producer Honda Türkiye; pick-up, truck and minibus producer Karsan; truck and bus manufacturer Mercedes-Benz Türk; pick-up, bus and midibus manufacturer Temsa Global; truck, pick-up and midibus producer Anadolu Isuzu; truck, bus and midibus producer BMC; pick-up, bus, mini and midibus manufacturer Otokar; and bus producer MAN Türkiye.
In terms of vehicle types, the “big five” also dominate each variety. Some 57% of the 96,540 passenger vehicles produced in the first two months of 2012 were made by Oyak-Renault, while Ford Otosan manufactured 57.8% of the 72,443 pick-ups.
Tofaş took a further 38.6% of the latter market. Toyota and Hyundai, meanwhile, took 15.3% and 14.8% shares of the passenger car market, respectively.
TRUCK MARKET: Where smaller manufacturers do dominate is in trucks, buses and midibuses. In the truck market, Mercedes-Benz Türk produced 55.8% of the 4534 trucks manufactured during the two-month period, and 42% of the 882 buses. In the latter market, MAN Türkiye produced a further 29%. All the 514 midibuses produced were attributed to smaller manufacturers, with A. Isuzu taking the largest share, at 43.4%, and Otokar at 34.4%.
According to Wolf Dieter Kurz, CEO of Mercedes-Benz Turkey, buses are a particular growth segment.
“Coach-style buses are in very high demand. People in Turkey are active travellers, and this is driving greater demand for coaches,” he told OBG.
Looked at on an annual basis, the sector’s total production has been increasing steadily over the last few years. In 2009 production stood at 869,605 vehicles, according to the OSD. This rose to 1.09m in 2010 and 1.19m in 2011. However, the first two months of 2012 saw a decline of 6.3% year-on-year.
The main reason for this, according to the OSD, was a decline in domestic retail sales, which went down 31.8% year-on-year, and factory sales, which declined 33.8%, due to central bank measures to curb credit and loan growth, alongside a weaker Turkish lira. These factors contributed to unusually weak performance in passenger car and pick-up sales, with manufacturers having trimmed output accordingly.
Nonetheless, the long-term picture continues to be one of expansion. Indeed, Ford Otosan plans to roll out a new LCV in early 2014, with around €205m of investment in its plants in Turkey, while Toyota plans to build the new Corolla saloon car at its plant in Sakarya on the Black Sea coast, investing up to €150m, with production set to start in 2013. Tofaş, meanwhile, intends to sell its Doblo van model under US firm Chrysler’s Ram brand in the US starting in 2013, following a $160m investment.
Indeed, the strength of the sector is partly due to its overseas links, with exports making up a major, if declining, share of total sales. Exports accounted for 628,970 units in 2009, rising to 754,469 in 2010 and 790,966 in 2011. Domestic retail sales also increased from 575,869 units in 2009 to 793,172 in 2010 and 910,867 in 2011. Passenger vehicles make up the largest share of exports, accounting for 55.9% in 2011, although this has declined from 61.8% in 2009 and 58.3% in 2010. Among the commercial vehicles that comprise the rest of the export total, pick-ups take the largest share, accounting for 42.9% in 2011, up from 40.7% in 2010 and 36.8% in 2009.
The export market is also dominated by three outfits – Oyak-Renault, which accounted for 35% of total exports in 2009, 30.8% in 2010 and 28.4% in 2011; Ford Otosan, which took 20.4% in 2009, 23.3% in 2010 and 26.7% in 2011; and Tofaş, which took 26.8% in 2009, 25.7% in 2010 and 22.8% in 2011.
In the first 11 months of 2011, the sector generated $18.6bn worth of export revenue, accounting for a 15.3% stake of the country’s total exports, according to the Turkish Exporters Assembly. The main destination for these exports has long been the EU, with around 50% heading there in 2011, according to the Automotive Industry Exporters Union.
GETTING IN THE HARVEST: With agriculture still a major contributor, tractor manufacture is a significant local industry. Indeed, in 2011, Turkey became the fourth-largest tractor market in the world, after record harvests, strong economic growth and a major hike in agricultural loan subsidies by the state agricultural bank. Dominating this segment is Türk Traktor, a partnership between Koç Holding and CNH Global NV, which took 51% of the domestic market in the first 11 months of 2011, selling around 28,000 units. Around half its output is also exported.
SUPPORTING INDUSTRIES: The automotive sector is underpinned by a variety of local suppliers. In tyre manufacturing, BriSA, Pirelli, Goodyear and Petlas dominate, all producing in Turkey and accounting for 60% of the local market between them, according to BriSA. Importers include Michelin and Hancock.
The first of the locally based outfits, BriSA, is a joint venture between Bridgestone and the Sabancı Group, and is Turkey’s leading manufacturer and the sixth-largest in Europe. Petlas, meanwhile, started out a state tyre manufacturer, was privatised and now is owned by the Abdulkadir Özcan Group, which also manufactures tyres for the Turkish Air Force.
Replacement tyres are the most profitable segment for the sector. The devaluation of the Turkish lira in 2011 also led to a jump in export demand from Europe in particular, with downturn-hit Europeans going for cheaper Turkish products. This has also made up for recent declines in exports to the Middle East and North Africa due to the Arab Spring.
Another key local outfit is KordSA, a Sabancı firm that manufactures tyre reinforcement and mechanical rubber, key ingredients for tyres and other auto parts. Some 90% of its output goes to tyre manufacturers, producing the kind of supply chain that the government would now like to see elsewhere.
NATIONAL CARS: Indeed, recent months have seen the government come forward with a major push to manufacture vehicles domestically, using entirely locally produced parts. Behind this initiative lies a long-term strategy to reduce Turkey’s perennial current account deficit problems, which partly stem from the country’s dependence on imports for many items. The automotive sector imports many of its materials, with a deficit having appeared in 2010-11 as exports of finished products to Europe declined, while the price of imported parts continued to rise.
The government thus announced in April 2012 an incentive scheme to benefit the automotive sector, with full details to be announced. This dovetails with existing incentives to help R&D in particular. Indeed, Turkey has been a growing R&D centre in automotives in recent years, given cheaper labour costs and the availability of qualified engineers and scientists.
The future thus looks to be one increasingly dominated by local production. The domestic market will likely start leaning toward Turkish-designed and -produced cars. At the same time, exports will remain key, with a more diversified export market the goal.
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