Hitting the Brakes

Turkey

Economic News

22 Jul 2010
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Turkey's automotive sector, one of the driving forces behind the country's export boom, has shifted down a gear and is in danger of going into reverse as overseas and domestic sales slump.



A report issued by the Turkish Automotive Industry Association (OSD) on November 11 showed year-on-year production fell by 20.5% in October, with just 80,300 units coming off the assembly lines. Export figures for the industry were even worse, with just 54,928 vehicles shipped overseas for the month, a 27.5% drop on the same month in 2007.



The OSD also revised its projected year-end production and export totals, saying output would be 1.2m units, down from earlier predictions of 1.4m, while overseas sales would total 900,000, rather than the expected 1m.



But the OSD's report was not all bad news, as it showed that automotive production for the first 10 months of the year was up 19.4% compared to the same period in 2007, and that car exports had increased by 15.2%. Nevertheless, the association is pessimistic about the immediate future.



"The shrinking of the European market, which accounts for 90% of our exports, began to show its impact on our exports in October, with the cancellation of orders," said the OSD in a statement accompanying the production data. "In the coming months, it is expected that this decline will continue."



In 2007, overseas sales for Turkey's automotive sector stood at $19.3bn, making it the country's most lucrative export industry, according to the Association of Automotive Parts and Components Manufacturers (TAYSAD).



Turkish automotive producers are not only seeing their sales stall abroad. According to Ibrahim Aybar, president of the Turkish Automotive Distributors Association (ODD), domestic banks are rejecting up to 75% of all applications for loans to fund car acquisitions. This resulted in a 35% fall in car sales in October, Aybar told the local financial news on November 10.



Local producers have sought relief from the government, calling for a reduction in sales taxes on vehicles. In late October, Finance Minister Kemal Unakitan had said the government was considering cutting the rate of the private consumption tax for a number of products - news that initially heartened the automotive industry.



Vedat Gizer, president of the Authorized Car Dealers Union (YODER) in the southern Cukurova region, said the industry was looking forward to the tax cut to overcome the recent stagnation in sales.



"We had been seeing a boom, especially in the last four months of 2007, but now car sales are about to cease totally," he told the local media on October 28. "People will think twice before purchasing a car because of the uncertainty in the economy and the increase in interest rates."



But Unakitan dashed these hopes by ruling out any tax cuts for the automotive industry, saying any reduction in taxes would only lead to higher imports of foreign cars, doing nothing for the local automotive industry.



"We already import 75% of the cars we use here in Turkey. Such a reduction would mean an incentive for the foreign exporters. We want to encourage Turkish entrepreneurs, not foreign companies," he said on November 2.



The downturn in the automotive sector is being mirrored across Turkey's industrial landscape. According to figures released by the state's Turkish Statistical Institute (Turkstat) on November 10, industrial output in September fell 5.5% compared to the same month last year, after a decline of 4.1% in August. The September results demonstrated the biggest decline in output figures since 2002 - the first time since February of that year that Turkey recorded two consecutive months of negative growth for industrial production.



On November 13, leading producer Ford Otosan, a joint venture between Ford and Koc Holding, announced it was halting work at its Golcuk plant in northwestern Turkey until November 26, giving paid leave to its staff of 6400.



Ford Otosan reported a 31.1% fall in its unconsolidated net profits for the third quarter when it released its latest financial figures on the Istanbul stock exchange on November 8. The company's profits for the July to September period were $56.5m, down from the more than $80m in the third quarter of 2007, the company said. Other producers are expected to report similar falls in profits when they table their third quarter results.



Ford Otosan is not the only manufacturer that has suspended production, with Toyota, Tofas Turk, which turns out Fiat vehicles, and Oyak Renault all shutting down lines in either September or October.

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