Turkey’s automotive production reached an all-time high in 2017, rolling out 1.75m vehicles. This was an increase of 14% compared with 2016, according to a report from the Turkish Automotive Manufacturers Association. Today, Turkey is the fifth-largest automotive production base in Europe and is expected to continue growing. In the early 1990s, rapid industrialisation transformed the sector from assembly-based partnerships to a fully-fledged industrial manufacturing sector with a significant production capacity. Turkey produces vehicles for export and many international manufacturers have made Turkey their base, evidenced by the fact that 77% of production is intended for export markets.

However, Turkey’s domestic market potential is not to be underestimated, given a combination of opportune factors such as increased purchasing power and low rates of automobile ownership. Per capita income in Turkey has increased fivefold over a 15-year period. Additionally, despite an increase in sales, according to the Turkish Statistical Institute, vehicles per capita – at 275 per 1,000 people – remain well behind the European average of approximately 500 per 1,000 people. These figures indicate ample opportunity for automotive manufacturers to exploit the domestic market. Beyond manufacturing foreign brands, Turkey is also in the planning stages of a domestic car range.

Highly qualified workforce yet reputational risks persist

Turkey is becoming an increasingly competitive manufacturer, as its industries are expanding their technical know-how. Its large and growing young population, and increasingly educated workforce, will continue to provide significant access to medium-skilled labour. Low tax rates and labour costs in comparison with many EU neighbour states make the country an attractive destination for labour-intensive industries. Hourly labour costs, according to figures compiled by Eurostat, average at approximately EUR 6 in Turkey compared with EUR 24 in the European member states.

However, labour regulations, in particular safety standards, are low in Turkey and safety regulations are not always respected or evenly enforced. Workplace incidents are not uncommon; a Turkish NGO reported 2,006 workplace deaths across sectors in 2017, presenting potentially significant reputational risks for companies doing business in Turkey.

Favourable geographical location

Turkey’s location at the crossroads of many large consumer markets and important trading routes makes it an excellent gateway for automotive exports. The country has significantly capitalised on its favourable location since the Justice and Development Party (AKP) came to power in 2002 and began heavily investing in infrastructure. Today, Turkey boasts a robust transport infrastructure system, including modern roads, high-speed rail, as well as new road and rail tunnels. This continued investment will enable expansion of the network to accommodate increasing production outflows.

Conflicts in Iraq and Syria have had a negative impact on Turkey’s transport and logistics sectors, disrupting land trade routes to the Gulf states. Since 2011, the cost of transport to the Gulf states has increased by 40% and transit time has increased from 12 to 25 days, according to a paper by the French Institute of International Relations. However, Turkey is one of the main targets for China’s large international infrastructure initiative, Belt and Road, which will create ample new opportunities for transport infrastructure expansion and building closer economic ties with China. If and when the conflicts in Syria and Iraq are resolved, Turkey will be hoping to take advantage of the Chinese investments in order to advance its strategy to serve as a bridge to Europe and China.

Domestic car range

Prime Minister Binali Yildirim in February 2018 announced that sales of the first indigenous Turkish automobile would commence in two-to-three years. Five Turkish companies will take part in a consortium, potentially producing a first prototype as early as 2019. Such prestigious projects seek to gain domestic support by appealing to nationalist sentiment.

Despite attempts to boost its domestic manufacturing industry, the government is very unlikely to push out foreign automotive companies. Ultimately, the government’s growth strategy for the domestic automotive sector relies on the know-how of foreign companies, and is therefore likely to continue for the foreseeable future. However, favouritism will remain relatively common and foreign companies will continue to find it easier to win tenders when in a consortium with domestic companies.

Political uncertainty shores up integrity and contract risks for businesses

The failed coup attempt in July 2016, which was driven by deep ideological divisions, has since tilted the playing field increasingly in favour of businesses close to the government. Companies face integrity risk when engaging with domestic partners as maintaining good government ties presents a risk of corruption, particularly when entering tender processes for large contracts.

The government has sought to crack down on the business interests of the suspected perpetrators of the coup, meaning there are contract risks for companies perceived to be partnering with Gulen-affiliated organisations. The Gulen movement is a politico-religious group centred around Fetullah Gulen, the controversial Turkish Islamic cleric and alleged mastermind of the coup.

The economy has rebounded quickly following the coup, which saw foreign direct investment decline by 30% and led to a dramatic devaluation of the Turkish lira. The automotive sector in particular has bounced back well. However, structural economic problems persist that threaten a balance of payments or currency crisis, and need to be addressed through substantial structural reform. Meanwhile, further political uncertainty could yet undermine the resilience that the Turkish economy has shown to date.

Investment in Turkey automotive industry will remain attractive for foreign organisations, as Turkey has a business-friendly attitude and seeks foreign investment to promote the growth of the automotive manufacturing industry. However, with political divisions widening, integrity and contract risks must be assessed before entering the market.



  • Lisa Haferlach, Associate Consultant

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