Turkey Autos Report Q4 2009

Turkey's automotive sector has been dented by the dramatic slowdown in the sector that began in the autumn of 2008. Early in the year, analysts were predicting total auto sales to fall as much as 20% during the year due to a collapse in exports that forced many manufacturers to suspend production. In recent months, however, the market has begun to improve. Domestic sales have been propped up by tax cuts, and while exports are still suffering, they are at least stabilising.

Vehicle sales tumbled 31.6% year-on-year (y-o-y) in July to 28,845 units, according to the Automotive Distributors' Association (ODD). But for the first seven months of the year, total car sales reached 302,202 units, down a modest 1% from the previous year. Passenger car sales rose 8.6% y-o-y in the seven-month period to 206,333 units. Light commercial vehicle sales, however, slumped 16.8% y-o-y to 95,869 units in the year through July.

Turkey is beginning to unwind the temporary tax cuts that it implemented as part of an effort to jumpstart spending. The government in June reversed part of a tax break on autos that it had implemented in the spring to spur car buying. The tax break forms the bulk of the government's stimulus plan for the auto sector and has helped boost domestic car sales. But it remains to be seen how much of a stimulus the tax break will provide as it is gradually phased out. A hike in fuel taxes could also deter consumers from driving and buying autos. In July, Turkey raised taxes on fuel which will increase prices at the pump by 8%.

BMI expects Turkey's economy to shrink 6.2% in real terms in 2009, which would mark its first economic contraction since 2001. Consequently, we see automotive sales down by 12.7% to 503,121 units in 2009, which will mark the third straight year of decline. However, an economic rebound is expected in 2010, with growth of 2.6% predicted. Against this backdrop, we expect sales to gain pace. By the end of the forecast period, Turkey should see its highest annual sales volume with 714,423 units sold.

However, Turkey's auto exports have been hit hard by the economic recession that has swept across Europe. Car exports have shrunk as consumers in Europe have tightened their belts in the face of the economic slowdown. This has resulted in a decline in production. Total auto production slumped 24.6% in June, with passenger car output falling 15.1% y-o-y. In 1H09, auto production fell 35.3% to 245,929 units. Auto exports are expected to remain depressed through the year, but the situation is expected to improve as several governments have launched car scrappage schemes that are reigniting consumers' demand for vehicle purchases. While conditions appear to be improving, the recovery in the autos market will likely be gradual and fragile.