Turkish vehicle maker BMC's sale to government ally approved

By bne IntelliNews May 22, 2014

bne -

 

The Turkish Competition Board on May 21 approved the sale of Turkish vehicle maker BMC to Ethem Sancak, a close ally of Prime Minister Recep Tayyip Erdogan.

Sancak offered TRY751m ($360m) on April 25 to buy the manufacturer of armoured vehicles, trucks and buses from The Savings Deposit Insurance Fund (TMSF). The state fund seized the company from Cukurova Holding last year, along with 11 other companies, over alleged failure to make payments on $455m of debts. TMSF initially estimated BMC's value at TRY958m, but Sancak's company, Es Ayotom, was the only bidder in the auction.

Founded in 1964 as a joint venture between local partners and the British Motor Corporation (later British Leyland) from whose initials it took its name, BMC is the third oldest of Turkey's 15 vehicle manufacturers. The company continued to produce Leyland-designed vehicles under licence following the British company's exit in 1979 and ten years later was bought by Cukurova.

Under Cukurova, the company's fortunes initially appeared assured. By the late 1990s, BMC was producing a large range of mainly self-designed specialist commercial vehicles, including a range of small trucks that it was exporting to the UK - albeit not under the BMC marque, for which it only holds the rights to use in Turkey.

Turkey's low manufacturing costs and high skill base means its car sector has long been geared to the European market, which is still the destination of around 75% of exports. That left it exposed, along with the rest of the Turkish automotive sector, and BMC was hit hard by the global economic crisis of 2008 and the subsequent Eurozone crisis. 

Turkey's total vehicle production fell from 1.17m units in 2008 to just 884,000 the following year. Although by last year production had bounced back to 96% of pre-crisis levels, figures from Turkey's Automobile Distributors Association (ODD) for the first quarter show domestic sales of automobile and commercial vehicles fell 24.5% on an annual basis.

It's in this market that Sancak has bought BMC. "Turkey remains a very tight market for commercial vehicle manufacturers and 2014 looks like it will be a difficult year," says Onur Marsan, automotive analyst at Istanbul brokerage Garanti Yatirim.

Yet the transaction also has a political edge. While the sale of BMC to a new owner should solve the short-term cash flow problems, it will also offer an opportunity for the company to fulfil a long-term ambition of PM Erdogan for the development of an all Turkish passenger car.

While BMC and other small manufacturers have both designed and produced specialist vehicles, to date all of the passenger cars and the mass production commercial vehicles produced in Turkey have been designed by major international manufacturers. Fiat, Renault, Hyundai, Toyota and Honda all produce passenger vehicles in Turkey, either with local partners or alone, while Ford, Mercedes Benz and Man produce commercial vehicles on the same terms. Turkey's Karsan produces light commercial vehicles and buses under license from a number of manufacturers.

Turkish manufacturers have been trying for over a decade to increase the level of local content in their vehicles and to boost their own R&D facilities helped by government incentive schemes. That ambition is boosted by some projections that the domestic vehicle market could top 1m by this year.

The government has been pushing for an entirely Turkish model, along the same lines as Malaysia's Proton, which can be sold on both on domestic and international markets. Officials from Sancak's companies declined to respond to questions from bne as to whether there are plans to develop such a vehicle. However the businessman's reported close relations with Erdogan suggest that such a venture will probably be raised.

Analysts, however, point out that it would face an uphill struggle to be commercially viable. They point to weak demand for existing vehicle models from Turkey's key European markets, while a recent increase in special consumption taxes ramps-up the levy on a new car to a minimum of 45% of cost price. In addition, draft legislation to limit automobile loans to a maximum of 70% of the price has also been drawn up.

Related Articles

Turkey approaches day of reckoning on economic reform

Kivanc Dundar in Istanbul -   The unexpected success of President Recep Tayyip Erdogan’s Justice and Development Party (AKP) in this month’s general election should bring much-desired political ... more

Macedonia kept on hold as Balkans edges towards EU goal

Clare Nuttall in Bucharest -   Macedonia’s EU accession progress remains stalled amid the country’s worst political crisis in 14 years, while most countries in the Southeast Europe region have ... more

Turkey and America seen on course for confrontation in Syria war

John Davison of Exaro - Military action by Turkey against Kurdish rebel forces in Syria raises the prospect of a direct clash with the ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335
Dismiss