ISTANBUL -- Turkey is increasingly confident that Volkswagen Group will build a production plant in the country after an "extremely positive" meeting between a senior company executive and President Tayyip Erdogan this week, three Turkish sources said.
Reuters reported last week that the two sides had been holding talks over Turkey's vehicle tax regime to conclude the 1 billion euro ($1.1 billion) investment.
VW's supervisory board has chosen a site for the factory near Turkey's western coastal city of Izmir over a location in Bulgaria, Automobilwoche, a sister publication of Automotive News Europe reported in July.
VW has not announced a final decision, but sources have said the automaker is positive about investing in Turkey.
The plant will build cars for VW, Skoda and Seat. It will ease capacity constraints at Skoda's factories in the Czech Republic.
Erdogan and a high-ranking VW official overcame most of the problems during a meeting this week, one Turkish source with knowledge of the matter said. A Volkswagen source said Erdogan had met with VW CEO Herbert Diess this week.
"There were previously some small issues, such as the tax arrangements on the cars that will be sold. In the meeting, an almost complete agreement was reached," the Turkish source said. "If there isn't a last minute problem, the investment will be made in Turkey."
Steep Turkish taxes on larger cars limit most buyers and local producers to smaller engine sizes. Cars with engines of less than 1.6-liters made up 96 percent of Turkey's new car market in 2018. A source had said Turkey was trying to find a formula to address Volkswagen's concerns without putting existing car producers at a disadvantage.
Major producers such as Fiat, Renault, Ford, Hyundai and Toyota produced more than 1.3 million vehicles in Turkey last year.
Czech Prime Minister Andrej Babis said on Tuesday during a visit to Ankara that Volkswagen is making a big investment in Turkey.
A second Volkswagen source said only minor matters still had to be clarified, mainly on tax issues. The agreement was expected to be reached in a few weeks and the plant was expected to be built in the western Manisa province, the source said. Manisa is next to Izmir province.
"There is no problem any longer about thinking that the investment will be made in Turkey. This decision will be announced in a short while after the final adjustments are made," a second Turkish source said.
Skoda CEO Bernhard Maier said in March that the brand could have sold 100,000 more cars last year if the capacity to build them had been available.
Automotive News Europe contributed to this report