Turkey: Automobile market drives on

These are exciting times for Turkish car manufacturers, who are riding a wave of growth thanks to a weak lira, increasing investment in research and development (R&D) and foreign firms’ boosting of local production. In a sign of the local industry’s growing maturity, one domestic investment firm is now the frontrunner in the takeover of an ailing European car manufacturers.

Indeed, as Swedish carmaker SAAB filed for bankruptcy in late 2010, its management sought help for a last-minute rescue. Turkish investment firm Brightwell Holdings, which invests in energy, transport and technology, has now emerged as a potential buyer of the firm.

“We are interested in the whole company, not just small components or the brand,” said Zarnier Ahmed, a Brightwell board member, when speaking with Swedish daily Dagens Industri. The Turkish government has also been involved in talks and the firm is currently undertaking due diligence on the Swedish car company.

Though Brightwell has said it intends to keep Saab’s production in Sweden, plenty of automotive firms already operate in Turkey, including US-based Ford and the local Koç Group under the brand Ford Otosan; an Italian/Turkish joint venture (JV) of Fiat and Koç called Tofas; and a JV between the local Oyak and France’s Renault, Japan-based Toyota and South Korea’s Hyundai.

All these firms are planning to boost their existing presence in the country, a promising move considering the sector’s recent growth. Over an 11-month period from the start 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 (TIM). Over the period, the sector grew by 5.8%, with 723,771 cars sold. In terms of sales, Oyak Renault shipped 209,940 units, with Ford Otosan and Tofas ranking second and third, respectively, with 192,222 and 165,217 units each.

Under the government’s Ninth Development Plan the industrial sector as a whole is earmarked to contribute 27.2% of GDP by 2013. According to data from the Ministry of Industry & Trade, the automotive sector accounts for 8.27% of overall manufacturing, but the rate of spending on R&D is 31.17%.

These numbers could continue to grow as a result of the government’s ambitious plans for the sector. The Tubitak-Teydeb (The Scientific & Technological Research Council of Turkey) has focused on R&D spending with tax incentives. Success in attracting international firms is now starting to turn towards the development of the country’s own local car brand, focused primarily on the domestic market.

“This used to be a seller’s market for consumer goods like appliances and cars. There was limited variation among products and people would purchase whatever was available,” Steven Young, the managing director of Bosch in Turkey, told OBG. “Now, the market is more mature and consumers are demanding choice, so manufactuers are having to innovate to provide more options.”

With modern ports and proximity to both Western and Eastern Europe, as well as lower labour costs compared to its European neighbours, the country’s competitive advantages are not lost on international manufactuers. Most firms are JVs with foreign partners, manufacturing under a foreign company’s licence.

As a result, manufactuers are boosting production. According to an investor presentation in December 2011, Ford Otosan, which holds 15.6% of the domestic automobile market, plans to roll out a new light commercial vehicle in early 2013. Up to $205m of investment will be spent on its plants in Turkey.

“The government needs Turkish companies to leverage the intellectual value added by the population, as it is one of the ways to reduce the current account deficit. The government’s goal to increase R&D spending from 0.8% of the budget to 3% is a smart move,” said Young.

Other firms are investing in new plants or signing new export agreements. In November, Toyota announced that it would be building the new Corolla Sedan at its plant in Sakarya on the Black Sea coast, investing up to €150m, with production set to start in 2013. Toyota currently manufactures the Corolla Verso and Auris models for export to 30 countries across Europe, with an annual production capacity of 150,000 units.

And in early September, Tofas, with 14% of the local market, signed an agreement to sell the Doblo van model under US firm Chrysler’s Ram brand in the US from 2013. The company will invest $160m in the project. Over a seven-year period, Tofas will export up to 190,000 vehicles starting in early 2013.

One challenge, however, to distributors hoping to sell these new cars is a recent decline in auto sales. Automobile and light commercial sales in January fell 34.2% compared to a year earlier, the Automotive Distributors’ Foundation reported this month, mainly due to increases in the special consumption tax, car prices and interest rates. The total number of cars sold in January was 29,545, down from 44,892 in the same month last year.

However, as the Brightwell bid indicates, the future of Turkey’s automotive sector could begin to include more Turkish firms investing in established car manufactuers overseas, even as international firms seeking to build plants and take stakes in domestic firms continue apace.