Turkey Autos Report Q4 2008

Turkish automotive exports are set to exceed 1mn units for the first time in 2008, confirming the countrys position as a major production hub for supply to Europe, according to BMIs latest Turkey Automotives Report.

Turkish automotive production was up 31.8% year-on-year (y-o-y) to just under 790,000 units in H108 with output growth fuelled by 36.0% growth in export demand to over 557,500 units. Passenger car production was up 19% to 375,843 units and commercial vehicle production was up 49% to 333,119 units. With light vehicle production at or near capacity in H108, automakers are seeking to add capacity to Turkeys automotive industry with planned increases in capacity by Ford Otosan, Tofas and Honda as well as investment projects by new entrants to the Turkish automotive market, such as Chinas Chery.

Ford Otosan has raised its production forecast from 310,000 to 330,000 units in 2008, with much of the extra capacity dedicated to production of Ford's Transit Connect van, which the company plans to export to North America from mid-2009. Tofas is planning to increase production from 215,000 units in 2007 to 350,000-360,000 units in 2008 and 400,000 units in 2009. Most of the additional output will be exported, but the carmaker also plans to raise its domestic sales by 15% to around 90,000 units in 2008. Honda Turkiye is planning to invest US$100mn to raise its Gebze-based plants annual production capacity from 30,000 units to 50,000, with the possibility of further expansion to 100,000 units by 2009. Also in Q208, Chinese carmaker Chery announced plans to produce vehicles in Turkey, intending to use the country as a springboard into the European Union (EU). Chery is joining with local producer Mermerler Group to produce the Tiggo, Kimo and Alia models, but eventually hopes to open its own plant within two years with an initial annual production capacity of 100,000 units, 50% of which will be exported to Europe.

The Turkish automotive market is recovering earlier and faster than BMI had anticipated and defying consensus estimates, but growth is set to moderate in H208 and H109 as a result of rising interest rates.

The monetary easing that led to a 12,9% y-o-y growth in automotive sales in H108 is coming to an end as the central bank seeks to curb inflationary pressures in the economy, However, he only expect a temporary slowdown in growth rather than a contraction in the market, with higher rates of growth expected from H209. BMI expects automotive sales growth rates to remain in single digits until 2011 when an upturn in GDP growth coupled with an easing of interest rates will create conditions for average annual growth of 12.5%. By 2012, automotive sales should exceed 1mn units. The car market will be 54% larger than in 2007, while the commercial vehicle market will be up 63%.

Exports were up 54.6% y-o-y in H108 to 557,553 units with Oyak Renault, Ford Otosan, Tofas and Toyota recording export growth of 59%, 27%, 118% and 27% respectively. Oyak Renault overtook Ford Otosan to become Turkeys largest automotive exporter. By segment, passenger car exports were up 50% and commercial vehicle exports were up 61%. Meanwhile, imports were up 12% y-o-y to 159,217 units, representing 56.7% of sales. BMI forecasts that exports will reach 1.1mn units in 2008, a revision from the 925,620 units forecast in the previously quarterly report as a result of high levels of export demand and increase domestic capacity. Exports will plateau at 1.29-1.30mn units from 2010 due to capacity constraints, with current levels of investment unable to keep up with external demand. This may change in the event of further announcements of added capacity over the next two-three years.

Turkey scores 67.7 points (out of a theoretical maximum of 100) in the BMI automotive business environment rating this quarter, up 7.5 points over the previous quarter as a result of the strength of the recovery seen in H108. Turkey has strengthened its first place position in BMIs automotive rankings for the Middle East and Africa, 8.8 points ahead of the UAE. The key to Turkeys success is the openness of the countrys economy to trade and investment, helped by the countrys membership of the EU Customs Union. Turkey will remain a leader in motor vehicle output over the forecast period, as autos manufacturers use it as a regional production base for exports to Europe and the Middle East. Turkeys growing demand for cars and its open economy give significant opportunities to new market entrants.