Hyundai Assan, the rising star of the Turkish auto industry, plans to operate at full capacity this year, even though consumer sentiment could be affected by the uncertain political and economic outlook for the country.
“The automotive sector is very sensitive to changes in consumer sentiment, geopolitical and security risks”, Hyundai Assan’s general manager Onder Goker tells bneIntelliews in an exclusive interview. He says there is no need to be very pessimistic, but the problems in the Russian economy coupled with the sanctions imposed by Moscow against Turkey may hurt the Turkish auto industry’s sales there, including spare parts exports, according to Goker.
Despite the political turbulence – including two elections in less than six months and the flare-up of the Kurdish conflict – together with the difficult economic environment, a record 1.01mn million vehicles were sold in Turkey last year.
Turkey was the sixth largest auto market in Europe, after Germany (3.5mn units), France (3.1mn), the UK (2.35mn), Italy (1.7mn) and Spain (1.2mn).
With the motorisation rate (number of vehicles per 1,000 inhabitants) only at around 250, versus 560 in Europe, and with its 78mn population, there is also a lot more room for Turkey’s auto market to expand further in the future.
The mainly export-oriented Turkish automotive industry’s production increased by 16% last year to 1.4mn units, with exports rising 12% to 992,000 units. Export revenues declined by 5% to $21.7bn because of the fall in the euro. Exports should recover this year as economic growth picks up in Europe, the industry’s main market.
International carmakers such as Ford, Fiat, Hyundai, Renault, Toyota, Honda, and Hyundai have production operations in Turkey, which they see as a strategic location to export to regional and global markets. Turkey ranks sixth in Europe and 16th in the world in overall motor vehicle production.
Turkish sales rose in 2015 because of pent-up demand from 2014, when the economic outlook was uncertain, together with an anticipation that prices would go up in 2016 because of the weaker lira and a possible hike in auto loan rates.
In the first quarter of 2016, Turkey’s auto market contracted 3% y/y. The reason behind the contraction was the 12.3% y/y decline in light commercial vehicle sales, whereas passenger car sales rose by 1% y/y in Q1, data of the Automotive Distributors’ Association (ODD) showed on April 4.
|Export revenues (USD bn)||Auto production (units)|
The ODD foresees domestic sales volume to be between 900,000-950,000 units this year. This will depend on the performance of Turkey’s $720bn economy and the direction consumer confidence takes in the months to come. GDP growth is expected to be around 4% this year, unchanged from 2015.
Consumer sentiment improved in March despite a wave of terror attacks in the country’s largest city Istanbul and the capital Ankara, killing dozens of people. Consumer confidence rose by 0.5% in March after falling in the previous three months. The sub-index measuring the probability of buying a car over the next 12 months increased by a sharp 7.4% m/m in March, according to a recent survey by the statistics office TUIK.
A challenging environment
But tensions with Russia after the downing of a Russian bomber by a Turkish jet near the Syrian border in November, and continuing terror attacks may put pressure on consumer sentiment and could affect the auto market in the period ahead. Higher taxes and price hikes from last year will probably affect car sales, including second hand sales, Goker adds. Nevertheless, domestic sales and production figures in 2016 will still be similar to what the industry witnessed in 2015, he says.
Hyundai Assan is a joint venture between local Kibar Holding and Hyundai Motor Company. Kibar Holding owns 30%, while Hyundai Motor Company’s stake in Hyundai Assan is 70%.
Hyundai entered the Turkish market in 1990 and its plant, located in the industrial town of Izmit just outside Istanbul, began operations back in 1997. The carmaker has invested TRY1.2bn (€374mn) in the plant, which produces the i10 and i20 model passenger cars that are shipped to Germany, Italy, France, Spain, and the UK, as well as to the markets in the Middle East and Africa.
Last year, Hyundai Assan, which has an annual capacity of 230,000 units, produced 226,500 passenger cars that corresponded to 29% of the Turkish auto sector’s total output. It exports more than 200,000 vehicles to more than 40 countries. The carmaker has manufactured more than 1 million vehicles since began operations in Turkey.
In the local market, Hyundai sold 50,131 passenger cars last year through a network of 71 dealers, corresponding to a market share of 7%. The carmaker produces the i20 and i10 models at Izmit, while other models are imported from the Czech Republic and Korea.
Hyundai’s i20 model has a 17% market share in its segment, while its i10 model is the best-selling car in its class with a 75% market share, Goker says.
Eyeing new markets
Hyundai plans to produce 230,000 vehicles this year, thanks to strong demand from Europe for its i20 and i10 models, Goker says, adding that they plan to export 205,000 units to generate $2bn in export revenue.
Europe is Hyundai’s main export market but it also eyes opportunities in other destinations, according to Goker. Hong Kong and New Zealand are now on Hyundai Assan’s radar and it hopes to deliver its first batch of cars to these two destinations as soon as conditions become ripe for such a move, Goker says, without providing any time frame.
Iran is another lucrative market that Hyundai Assan can exploit. With the lifting of the sanctions, not only the automotive industry but also other sectors are very excited about the opportunities this huge market offers, Goker says.
Hyundai has a strong presence in the region and it wants to retain this position, thus it keeps a close eye on Iran and watches developments closely, he says, declining to get into details of the carmaker’s plans.
The carmaker plans to retain its domestic market share by selling another 51,000 vehicles in 2016, Goker said. Hyundai sold a total of 9,643 passenger cars in the first three months of 2016, corresponding to a market share of 7.5%, ODD data showed.