FULL SPEED AHEAD

Turkey 2012 | INDUSTRY | FOCUS: THE AUTOMOTIVE SECTOR

Robust growth in the automotive sector is a key part of Turkey's export strategy, and the auto industry is pushing forward to expand capacity and seek out new markets.

The automotive sector is a dynamic and flourishing element of Turkey's economy, and the sector has experienced strong growth in production, retail sales, and exports in y-o-y figures from 2010 to 2011. Although early figures and projections are lower for 2012, manufacturers are still optimistic about their market competitiveness and are looking to produce new models and expand exports to different markets.

PRODUCTION

Overall production in Turkey's automotive sector has continued to expand from 2010 to 2011, increasing from 1,094,557 units to 1,189,131 units, an annual growth rate of 8.6%, according to annual statistics from TSKB Research. So far in 2012, (January to May period) Turkey produced 469,366 units, a small decrease on the same period in 2011. The sector is nearly evenly divided between passenger car (PC) production at 639,734 units, or a 54% share of total production, and the light commercial vehicle (LCV) side, which produced 549,397 units in 2011. The pick-up subcategory made up 87% of LCV production by volume in Turkey, or 479,110 units, followed by the truck (37,396), minibus (22,475), bus (6,907), and midibus (3,509) segments. Manufacturers also continued to increase their capacity utilization rates (CUR) in 2011, rising to 76% from 72% in 2010. However, with the decrease in production numbers for the first five months of 2012, the CUR is back down to 72%.

Joint ventures, including Oyak Renault, Tofaş, and Ford Otosan, dominate Turkey's domestic production market. In 2011 Oyak Renault pulled ahead of Tofaş to become Turkey's largest auto producer, with 330,994 PC units produced. Tofaş, which produces PCs and LCVs, came in second with 307,788 total units, and Ford Otosan, which exclusively produces LCVs in Turkey, was in third with 295,850 units. Other major players in the automotive sector include Toyota, Hyundai, and Honda in PC production and Türk Traktör, Karsan, and Mercedes-Benz in the LCV category.

EXPORT MARKET

The automotive sector is a key component of Turkey's export portfolio, and expansion in this sector is critical for Turkey to meet its ambitious export targets in the coming years. The major players' focus on increased capacity has paid off, with the automotive sector increasing its total exports in 2011 to 790,966 total units, a 4.8% increase on the 754,469 units produced in 2010. This represents $11.86 billion in exports or approximately 9% of Turkey's $135 billion in total exports in 2011, according to the Turkish Ministry of Customs and Trade. Turkey's biggest export partners in the automotive industry are France ($1.95 billion) and Italy ($1.66 billion), followed by Germany, the UK, Spain, Russia, Israel, Algeria, and the US.

Despite the strong growth in 2011 and steadily increasing capacity, the automotive sector is facing reduced demand for cars in Europe due to the ongoing eurozone crisis, and Turkey's auto exports so far in 2012 are down 5.5% in y-o-y terms. However, exports to Russia and North African countries, such as Algeria, remain robust. In an interview with TBY, Orhan Özer, CEO of Toyota Motor Manufacturing in Turkey, said that he didn't anticipate an improvement in the European market in the short term, and that Toyota and other manufacturers in Turkey will look to open up new export destinations in Eastern Europe and the Middle East while continuing to improve capacity utilization and total production. Exporters are also benefiting from a weaker Turkish lira, lowering the cost of production in Turkey relative to its European competitors. Automakers are also hoping that the Turkish government will establish new free trade agreements in the region in the coming years, further boosting and diversifying their target export markets.

AUTO PARTS

Auto parts production is also a dynamic and rapidly expanding component of Turkey's automotive sector. With $8.3 billion in export volumes in 2011, the auto parts subsector is a significant contributor to Turkey's export economy. The export total is up 28% from $6.5 billion in 2010 and an astonishing 60% from the $5 billion seen in 2009. Turkey's competitiveness in the parts sector has attracted more than 200 foreign direct investors, including the biggest names in parts. In addition, this subsector also provides billions of dollars in volume of parts and maintenance to Turkey's more than 15 million PCs and LCVs domestically. Most of the volume consists of engine and engine parts as well as tires and tubes, but Turkey produces nearly every part or component required to produce vehicles.

DOMESTIC MARKET

The past year has seen a number of significant developments in the automotive sector's domestic market. Overall, 2011 was a strong year for domestic sales, with 910,867 units sold, up 14.8% from the 2010 total of 793,172 units. This growth mirrors the rapid expansion of the Turkish economy in 2011.

Domestic sales have fallen sharply in 2012, however, down 26.4% in y-o-y terms in the period from January-May compared to the same period in 2011. The slump in domestic auto sales is an expected result of the government's October 2011 increase of the Special Consumption Tax placed on passenger cars, as well as the weakness of the lira. The tax increase in the domestic market targets vehicles with an engine capacity of more than 1.6 liters in an effort to reduce fuel consumption and to reduce Turkey's demand for foreign energy resources. Another factor hampering growth in domestic sales is a tightening of monetary policy and the subsequent increase in interest rates for consumer loans. In conjunction with one another, these factors have substantially raised the cost of car ownership in Turkey, causing the demand for vehicles to drop considerably. Some of the domestic demand is absorbed by a shift from PCs to LCVs, as these vehicles are not subject to the Special Consumption Tax. According to TBY's interview with Aclan Acar, Chairman of Doğuş Otomotiv, LCVs make up 30%-35% of total vehicle sales in Turkey.

FUTURE OUTLOOK

For Fatih Tamay, Sales and Marketing Director for Anadolu Isuzu, the automotive sector's aim for the near term is to increase production to approximately 1.5 million PC and LCV units, of which 1 million will be exported. At a recent automotive conference, Ali Bilaloğlu, CEO of Doğuş Otomotiv, outlined his vision for the sector's expansion to as much as 4 million units by 2023 in line with the Justice and Development Party's ambitious program for economic growth nation-wide. Bilaloğlu noted that even if this tough target is not achieved, the automotive sector nonetheless expects sustained and significant growth in the coming years. The government has indicated its commitment to the expansion of production by recently providing tax incentives for Turkish car manufacturers. New legislation allows for the reduction of tariffs on auto imports for foreign companies who produce at least 100,000 units in Turkey. There are further incentives for companies who use Turkish engines and locally produced auto parts rather than imports, according to daily Hürriyet. Analysts expect that these measures will serve to boost production by 100,000 to 200,000 units in the coming years and escalate the competitiveness of manufacturers in Turkey.