Turkey's automotive sector sees increase in investment, output and exports

While the economic downturn in neighbouring Europe affected Turkey’s automotive industry negatively in the years after 2008 – as its largest export market shrank – 2013 saw some signs of a recovery north of the border, with a concomitant boost to European sales. European car sales grew in 2014 and early 2015, with the vast majority of Turkey’s automotive exports destined for the EU. Now, the sector faces the challenge of building on that while also keeping its interests to the fore in the increasingly important trade talks now under way between the EU and the US. At the same time, the development of more value-added segments of the industry remains a priority, as efforts to boost more locally produced content in Turkish-assembled vehicles continue. Despite these challenges, Turkey’s automotive sector remains one of the largest in the region and the world, with a raft of associated industries, investments and jobs also dependent upon it.

Facts & Figures

The first major automotive plant in Turkey was established in 1956, when Otosan was licensed to produce Ford vehicles. Import substitution polices were often favoured back then, with the Devrim sedan the first locally designed and manufactured car. By 1963, the total number of units produced was only 3000 though, although in 1968, Fiat came in, via TOFA and in 1969, Renault entered, via Oyak-Renault. By 1976, output had reached 110,000 units. Since then, Toyota, Opel, Mercedes, Hyundai, Isuzu and MAN have all started producing vehicles in Turkey, with output reaching 421,000 units in 1993, then 431,000 in 2000 and 1.23m in 2011, according to the Automotive Manufacturers’ Association (OSD).

There are now 14 original equipment manufacturers (OEMs) in Turkey, with a total capacity in 2014 of 1.73m units between them. The largest capacities are Ford Otosan, with 410,200 units; TOFA Ş, with 400,000 units; Oyak Renault, with 360,000; Hyundai Assan, with 200,000 units; and Toyota, with 150,000 units. In 2013 some $1.2bn of realised investments were made in the sector, bringing the total since 2009 to $4.28bn.

Most production is based in the north-west of Turkey, with Kocaeli the location for Honda Türkiye, Hyundai Assan, Ford Otosan (who are also in Eski şehir) and Anadolu Isuzu (AIOS). Toyota is in neighbouring Sakarya, along with Otokar, and Temsa Global (who are also in Adana). Bursa is home for Karsan and Oyak Renault.

In 2013, OSD figures show that 42,330 people were employed by the OEMs, down from 44,655 in 2012 and 44,896 in 2011. In addition to the OEMs though, there are 4000 other manufacturers operating in and around the sector, employing 200,000 people in associated trades such as wheel and radiator production, electrical equipment, springs and batteries. The plastics, leather and glass industries, as well as the steel and aluminium sectors, are also heavily involved in automotives, alongside the chemical industry, which provides paints, coatings and a range of other materials.

Output & Exports

The total output for 2014 was 1.22m – up from 1.17m in 2013. Oyak Renault produced the most units in 2014, at 318,246 units, ahead of Ford Otosan, with 244,682, and TOFA Ş, with 222,807. In the 2006-14 period, capacity utilisation rates (CURs) have thus hovered between 60% and 80%, depending on the unit type, with the average CUR across all varieties in 2013 standing at 69.11%, according to the OSD.

In 2014 too, Turkey exported approximately 902,194 units – or around 74% of its total production, according to OSD. This export total was worth some $13.3bn, up on the $12.5bn the industry earned Turkey in 2013. The number of units exported was also up on the previous year’s total of 843,467.

The two main types of units exported have long been passenger cars (PCs) – in 2014, these made up 581,993 units – and pick-ups, which accounted for 269,995 units. In terms of value, buses are also a significant export – in 2014, although only 4629 buses were exported, these were worth some $985m.

Yet for all its export success, a feature of the Turkish market is that it is also a large automotive importer. In 2014, indeed, the OSD figures show a total of 429,982 PCs imported. However, imports dropped substantially in 2014 – a total of 517,527 PCs were imported the previous year.

The Rise of Car Ownership

With per capita GDP in Turkey rising to $10,404 in 2014 from $4565 in 2003, according to TurkStat, domestic sales have also risen over recent years. In 2009, OSD figures show, 575,869 units were sold domestically, rising to 910,867 in 2011. In 2012, sales were down, to 817,620, but picked up to 893,125 in 2013. In 2014 sales dropped again, to 807,486, with the increase in interest rates in early 2014 and a slowdown in economic growth impacting the market. The majority of these sales were PCs, which were down 11.6% year-on-year (y-o-y) with 563,456 of the total vehicles sold. By early 2015 retail sales were picking up again. New car sales recorded their fifth consecutive month of y-o-y gains at +57% in February 2015. The first two months of 2015 recorded a 32.9% jump in sales compared to the same period in 2014.

In 2014, some 73.2% of all PCs sold in Turkey were imported. The leading manufacturer in these sales was Volkswagen, followed by Opel and Ford.

Light commercial vehicles (LCVs) have also been popular domestically, as their dual functionality – business and family – tend to make them an entry vehicle to car ownership. LCVs are also subject to lower taxes than passenger cars. As most LCVs cost less than TL50,000 (€17,605), they also benefit from a lower minimum down-payment rate of 15% – after TL50,000, the rate rises to 50%. Special consumption tax is also being raised incrementally on vehicles, further widening the gap between passenger car and LCV prices.

In 2013 and 2014, however, LCV sales were down by 14.8% and 1.4%, respectively. Commercial vehicle sales domestically dropped as a whole in 2014, by 15.1%, according to the OSD, with heavy commercial vehicles (HCVs) also shrinking, by 14.8%. Also impacting sales here has been a passing on of the cost of lira devaluation in 2013 – many companies kept prices low into the new year, while many consumers also anticipated a future price rise and brought their vehicle purchases forwards. The 2014 hike in interest rates also made the cost of car loans more expensive. The year 2015 is likely to see higher demand than in 2014, given the surge in sales seen in the first two months of the year. Consumer confidence, however, has shown persistent decline, with the consumer confidence index falling to 64.4 in March 2015 – the lowest level since 2009.

A Global Player

The downturn in the EU economies following the 2007-08 crisis was felt sharply by the Turkish automotive sector – the loss of demand was around 30% in the years 2008-13, according to the OSD. Since then, the sector has been looking to increase exports to other countries, with some success. While exports to the Middle East, Africa and Central Asia had been less than 5% in the past, they had grown to around 15% by early 2014. At the same time though, the domestic market, while growing, is also not expanding fast enough for many manufacturers. The OSD points at high taxes on domestic sales as crimping development, while also hindering investment; with demand based largely on exports – and thus the vagaries of other economies – it is more difficult for investors to plan future increases in capacity. The government, however, is trying to cut the country’s current account deficit by restraining consumption.

Impact of International Trade Deals

Thus, the EU market remains crucial for Turkey, which benefits greatly from a Customs Union (CU) with the Europeans, enabling duty-free exports. Now, however, a concern in the sector is the progress of talks on a Trans-Atlantic Trade and Investment Partnership (TTIP) between the EU and the US. These negotiations may have a profound effect on Turkey, due to its CU with the EU, yet, as a non-EU member, Turkey has no direct influence on the negotiations. The TTIP may also dovetail with free trade agreements throughout the Americas and across the Pacific, creating a concern that Turkey may get left behind. While US goods would be able to enter the EU – and thus Turkey, via the CU – duty-free, there would be no obligation on the US to accept Turkish goods under the same terms.

In March 2014, the US declared that it was in favour of Turkey being brought into the TTIP, preferably as an EU member. The likelihood of this being achieved under current circumstances, however, seems remote, leaving an edge of uncertainty.

Nonetheless, for now, with the EU economies gradually improving, the medium-term picture may see benefits for those manufacturers ready to hit the European market once again. After closing its factory in Southampton in the UK in 2013, Ford Otosan has shifted production to Turkey, opening a new $511m plant in Yeniköy in the north-western province of Kocaeli in May 2014. The new plant produces minivans and LCVs which could bolster the company’s role as a leading exporter. TOFA too is expected to see a new PC roll off the assembly lines in 2015, while credit restrictions have been eased with interest rate cuts in the run up to presidential ballot in 2014 and general elections in 2015. Plenty still to aim for then in Turkey’s dynamic automotive sector.

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The Report: Turkey 2015

Industry & Retail chapter from The Report: Turkey 2015

The Report: Turkey 2015

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