Car industry turns into a Turkey

By bne IntelliNews March 27, 2009

Bernard Kennedy in Ankara -

Only months ago, the talk in the Turkish automotive industry was about attracting new investments, rising up the technology ladder, producing 2m vehicles by 2012 and eventually leapfrogging the UK and Italy to become Europe's third-largest vehicle manufacturer. Not any more.

True, output was flattening at around 1.2m vehicles per year following five years of phenomenal export-led growth. Yet the 16 vehicle makers and 300 parts producers didn't anticipate more than a passing plateau before demand picked up again.

Turkey's auto sector was a showcase for policies of attracting foreign investment. Whether acting alone or in conjunction with local conglomerates, giants like Renault, Fiat, Toyota, Honda and Hyundai in cars, Mercedes in buses, and Ford in light commercial vehicles, had generated jobs, transferred technology, created forward and backward linkages, and guaranteed access to markets. Almost 80% of the output of a once-backward and inward-looking industry was being exported, primarily to Europe. The existing manufacturers were snapping up government research and development grants, while potential newcomers like PSA (Peugeot-Citroen) and China's Chery were sizing up sites.

Nobody foresaw that by the end of 2008, plants would be lying idle and even core employees fearing unemployment. On March 11, Turkey's Automotive Industry Association (OSD) said automotive production fell by 63% on year in January and February as exports dropped by 61.6% in the same period. Even at current low levels of production, stocks weren't likely to be exhausted until August, and in February the OSD said it expected 2009 exports and production to fall 25% and domestic auto sales to shrink 20%.

Almost all vehicle producers are affected, although makers of commercial vehicles have been hardest hit, while the local Tofas enjoys some protection as a result of take-or-pay deals with mother-company Fiat and PSA.

At stake, stresses Ercan Tezer, general-secretary of OSD, are not only current profits, but also the industry's vision of the future. "After the crisis, the automotive industry globally will be radically different. The structure of companies will change. Some production locations may be done away with. For us, this may be an opportunity, but if you are going to take opportunities you have to be prepared."

As Turkey's strong points, Tezer cites the productivity of the workforce and an emphasis on quality, "with which the former [Eastern bloc] countries do not compare." He might also have mentioned the large potential domestic market and a critical mass of supply industries.

But Tezer looks on with envy at the measures that some EU countries have been adopting to support their own automotive sectors; Ankara has only temporarily cut sales taxes on new vehicles. Could some of Turkey's vehicle plants close for good? "No, no," Tezer insists. "But there will be serious damage. The parts industry especially will be seriously damaged."

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