Turkey counts on autos to drive economic growth
Country wants to boost vehicle and parts production to become world's 10th largest economy by 2023
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Turkey's auto industry, one of the great growth stories of the past decade, is not entirely immune to Europe's economic stagnation. After a decade of big gains, auto sales in Turkey are expected to decline 10 percent this year. Yet, the nation's government aims to triple vehicle production over the next decade.
The plan is to make the nation one of the world's 10 largest economies by 2023, the 100th anniversary of the Turkish Republic. If Turkey succeeds, it would vault into the top tier of auto producing nations with annual output totaling 4 million units, up from 1.2 million units last year.
Turkey is setting this target even as western European politicians struggle to save factories and jobs in a market that is declining for a fifth-consecutive year.
The automotive sector, which already is Turkey's biggest exporter, by 2023 would have to export parts and vehicles worth an estimated $75 billion, up from $20 billion last year. While that's an ambitious goal, the country's auto industry has enjoyed growing exports in recent years. In 2011, vehicle exports grew 5 percent to 801,112 units. Component exports jumped 26 percent to $8.3 billion, according to Turkey's Ministry of the Economy.
Tough goal
Over the past decade, Turkey has become an attractive export platform for global manufacturers. Some 13 automakers – including Ford, Fiat, Renault, Hyundai, Toyota and Honda – build vehicles in Turkey. Of their combined output, 800,000 units were exported and less than 400,000 sold domestically.
Turkey's automotive export target "is a very tough goal," said Ercan Tezer, general secretary of the Istanbul-based Automotive Manufacturers Association. "But at least we have a clear direction, and we are working to implement a strategy to get there."
The export goal would require Turkish assembly plants to triple annual production to 4 million units, Tezer said. It's a challenging goal – especially in light of western Europe's economic troubles, said Kamil Basaran, CEO of Turk Otomobil Fabrikasi AS (Tofas). Tofas, a joint venture between Fiat and the Turkish industrial and financial giant the Koc Group, builds passenger cars for Fiat and light commercial vehicles for Fiat, PSA/Peugeot-Citroen and Opel/Vauxhall.
Turkish exports have "great potential to grow in central and eastern Europe, as well as into our neighbor countries," Basaran said. Moreover, Turkey can increase
export income by building larger, more expensive vehicles. "Right now, the bulk of the Turkish export comes from subcompact models," Basaran said. "But growing the number of compacts shipped abroad and even expanding to mid-sized models could represent a substantial boost in export revenues."
Turkey's growing economy could take some of the pressure off exports. Last year, the nation's car sales totaled a record 910,867 units, up sharply from 174,442 units in 2002.
But the nation's economy, which grew at a torrid 8.4 percent pace last year, has slowed to 3.5 percent this year.
Likewise, vehicle sales in Turkey declined 12 percent to 558,893 units in the first nine months, a slowdown caused in part by an extremely strong first quarter in 2011.
Aging cars
For the year, industry observers expect sales to decline 10 percent, with a modest rebound in 2013, said Hayri Erce, executive coordinator of the Automotive Distributors' Association. Still, the nation's market fundamentals look good. Last year, Turkey had only 141 vehicles per 1,000 inhabitants. That's slightly below the total in Brazil and well behind Russia, which has 298 vehicles per 1,000 residents.
In addition, Turkish cars and trucks are getting old. Nearly 55 percent of the nation's 8.1 million vehicles are at least 11 years old, with 25 percent more than 20 years old.
 | Tofas CEO Kamil Basaran does not see Turkey substantially boosting exports to western Europe as automakers there struggle to reduce overcapacity and save jobs. |
Erce believes sales could easily double to 2 million units in a few years, especially if the government imposes higher taxes on owners of old, high-polluting vehicles.
Tezer, of the auto manufacturers association, believes the Turkish car market should grow to 3 million units and become less import-oriented in order to sustain domestic production of 4 million units.
Currently, imports account for nearly two-thirds of Turkey's vehicle sales. But Tezer expects domestically produced vehicles will generate half of Turkish sales by 2023.
Domestic suppliers
Turkey's domestic automotive suppliers will struggle to meet the country's goal of exporting $40 billion worth of parts in 2023, up from $8.3 billion last year.
Engine parts, tires, tubes and other components generated $3.7 billion of exports last year, according to Turkey's Ministry of Economy.
The Turkish suppliers' association, TAYSAD, estimates that only 3.8 percent of parts used for building vehicles in Europe are currently produced in Turkey.
Most of those exports are generated by international suppliers such as Robert Bosch, Delphi Automotive and Autoliv, said Ozlem Gulsen Arkan, general secretary of the association, which represents 310 companies.
To expand their exports, Turkish-owned suppliers will have to expand their research and development, Arkan said. They also must hire more engineers and seek joint ventures with foreign partners.
"Turkey could be a hub for Chinese and Indian suppliers interested in growing their business in Europe, as we have no duties with the European Union," Arkan said. "And since we are closer to Europe, we are more competitive on logistic costs than China and India."
Western Europe's economic crisis seems certain to slow Turkey's growth in the short term. But the country's thriving production has created the conditions for future growth.
Automakers view Turkey as a comfortable, low-risk place to do business. As Europe recovers, Turkey is likely to get its share of new investment.
You can reach Luca Ciferri at lciferri@crain.com.
