Automakers have long seen Turkey as a low-cost manufacturing opportunity, with a healthy supply of skilled and semi-skilled workers and a central location for easy access to the European Union, Eurasia and the Middle East.
For auto producers weighing global investment scenarios, Turkey has attractive offerings, says Fawaz Ahmad, an analyst at IHS Markit. "What is quite competitive in Turkey are the infrastructure and the energy supply," he said. "Energy is significantly less expensive than in Europe, and Turkey is quite close to Europe, so it's easy to export there."
But there is some risk at the moment, he said.
A sharp 15 percent drop in the Turkish lira against the dollar this year means that raw material imports will cost more. And worries about political instability have had a chilling effect on relations between Turkey and its European neighbors.
But concludes Ahmad, "We don't see too many downsides in the short term."
The industry appears to agree.
Significant recent investments include a $400 million project from Toyota to set up production of the C-HR compact crossover for European and North American markets.
Ford committed $52.2 million last year to increase production of its Transit Custom and Tourneo vans by 40,000 units a year at the company's van and truck factory in Kocaeli. When fully implemented, that plant will be capable of producing 330,000 units annually.
In May, Hyundai announced that it will add a new subcompact SUV model by 2021 to its plant in Izmit, where it makes the i10 city car and i20 subcompact. Meanwhile, Renault is reportedly shifting more production of the Clio subcompact to its plant in Bursa.
Fiat and Honda also have important manufacturing plants east of Istanbul, and both Ford and Fiat have research and development centers.
The Turkish government has not typically provided direct incentives for the auto projects, although r&d costs can be applied as tax credits. He added that a recent increase in the minimum wage by 30 percent could put cost pressure on employers at the lower end of the supply chain.
Companies are closely watching the government's efforts to strengthen political and currency stability.
"If Turkey can find a way to stabilize the currency, it would help investment," the analyst said. "But Turkey really is competitive."
This story appears in the 2018 Guide to Economic Development in the Global Auto Industry. To view the entire supplement please click here.
