The Automotive Industry in Turkey
2008 And Beyond?
Prof.Dr.Ercan TEZER / OSD General Secretary
Presented in “TURKINVEST Meeting"
Otomotiv Sanayii Derneği / OSD
Automotive Manufacturers Association
 Founded in 1974
 Main Objectives Are:
 To Represent MV Sector In Public Authorities, Local and International Organisations
 To Gather and Publish Various Information on MVI of Turkey
 To Organize & Conduct Joint Actions in Different Fields
 Is an Active Member of:
 OICA
 ACEA Liaison Committee
 ODETTE
 TAAM
 GAID Group
 OSD is a Partner of
 ACEA / EUCAR, EU ERTRAC and EU Motor Vehicle Technical Committee
 UN / WP 29
 All Relevant Information is Found in OSD Web-Site:
www.osd.org.tr/
Milestones of Turkish Economy
FREE
CIRCULATION
OF CAPITAL
EU/TR CUSTOMS
UNION
1989
1996 *
EU ACCESSION
NEGOTIATIONS
DECISION
2005 AND
BEYOND
CLOSED
ECONOMY
1980
1995 *
2002
FREE
MARKET
ECONOMY
WTO
MEMBERSHIP
EU FULL MEMBERSHIP
PERSPECTIVE
Political Uncertainty Resulting In
Business Indecision
Changing Political and Business Habits
Towards a New Turkey
Striving Private Sector
Automotive Industry

Global
(70 Mio Production / 62 Countries)

Intensive
(10 Companies / % 90 Production)

Multiple Effect-Creates
(Value Added / Revenue / Jobs)

High Competition / Costumer Expectation
(Better Safety/Higher Comfort/Rock Bottom Price)

Product Differentiation
(P.Cars-Status / CV-Investment)

Globally Under Heavy Legislation
(Emission/Safety/Climate Change)

Innovation Oriented
Global Delocalization
“To be Manufacturer in Potential Markets and Enjoy With Low Operational Cost”
1970
Japan
USA
1980
1950
1960
1980
S.America
And
Others
Europe
1990
1970
PRC
Korea
MVI in World – 2007
(x 1.000 Units)
11.596
10.781
1) JAPAN
2) USA
8.882
3) CHINA
6.213
4) GERMANY
4.086
5) S.KORE
6) FRANCE
8) BRAZIL
7) SPAIN
9) CANADA
10) INDIA
11) MEXICO
12) ENGLAND
13) RUSSIA
14) ITALY
15) TAILAND
16) TURKEY
17) İRAN
18) CZECH REPUBLIC
19) BELGIUM
20) POLAND
3.019
2.971
2.890
2.578
2.350
2.095
1.750
1.660
1.284
1.238
1.099
997
939
844
785
Ranking in EU (27)
Total
6
Buses
LCV
H.Trucks
P.Cars
1
2
6
9
2008
Production 1.300.000
Capacity
1.500.000
Exports
950.000
Market
675.000
World Total Production – 2005/2020
120.000
103.900
(1.000 Units)
100.000
80.000
P.Cars
LCV
HCV
66.700
60.000
Change
% 46
40.000
20.000
0
2005
2020
Increase in Total Production By Regions 2005/2020
1,56
World Total
1,03
1,11
1,11
1,16
Japan
N.America
EU
Korea
1,56
1,78
Mercosur
Others
2,21
2,31
E.Europe
Asia/Pasific
3,28
India
4,25
PRC
0
1
2
3
4
5
2020 / 2005
Production Moves From West To East & North To South
Production BRIC Countries 2005 / 2020
40.000
35.000
Russia
Brazil
PRC
India
1.000 Units
30.000
25.000
20.000
Change
X 3.29
15.000
10.000
5.000
0
2005
2020
2005
Russia
Brazil
PRC
India
Total / BRIC
Total / World
1.407
2.350
5.696
1.679
11.132
66.740
2020
3.347
3.588
24.204
5.500
36.639
103.932
2020/2005
2,38
1,53
4,25
3,28
3,29
1,56
New Trends Under Global Crisis

All Factor Indexes Are Picking up in Q4 2008
 Bad News Flow
 Raw Material and Oil&Energy Prices
 Credit Crunch Libor +
 Policy Interest Rate
 Inflation
 Unemployment


Drop in Global GDP Growth Results Slumps in LV Sales
 2008

1.8 m
 2009

3.5 m
 2010

2.9 m
Global Recovery is Expected After 2011
Market Change In 2008 EU/Turkey
P.Cars
2.000
50.000
2007
EU+EFTA
TR
2008
40.000
1.500
30.126
28.724
30.000
28.246
28.469
25.530
2007
1.550 1.427
1.358
2008
1.259
26.102
955
1.000
805
20.000
500
10.000
0
0
June
July
June
August
July
August
Commercial Vehicle
500
40.000
EU+EFTA
2007
TR
2008
2007
2008
400
30.000
25.702
21.535
20.669
21.871
19.151
20.479
300
253
231
20.000
187
200
10.000
170
185
146
100
0
0
June
July
August
June
July
August
P.Car Market Change % 2008 and 2009
Country
SPAIN
ITALY
UNITED KINGDOM
GERMANY
FRANCE
Total Western
Europe
2008
-23
-14
-8
1
2
2009
-12
-6
-12
-4
-6
-7
-7
Turkey Keeps up With Recent Global Economic
Trends in the Region
 Longest Practice of Global Market Economy
 Emerging Economy Applying the International Rules of Free
Trade Such as Competition Law, Property Rights And Etc.
 International Capital Movements are Liberalized
 Up to Date Infrastructure for Commercial and Financial
Activities, Telecommunication and Transportation
 Competitive Industrial Products for the World Market
 Long Term Relation With EU Within The Association
Agreement Dated 1963
 Candidate Country in Negotiation Process For EU
Membership
Customs Union/1996 and MVI
Customs Union Was Realized Between Turkey and
EU For The Free Circulation of Industrial Goods
 New and More Competitive Conditions in the Market
 Better
Incentives
for
the
Industry
Competitiveness to be a Global Player
Towards
 Closer Integration of MVI’s Between Turkey and EU
 More Share in the MVI Market for EU
 For the Free Movement of Industrial Goods
 Tariffs and Non-Tariff Measures Were Wholly Abolished
 for Non-EU Countries CCT and CTP Were Implemented
 Series of Technical and Commercial Legislation Were Adopted
More
Basic Steps Taken for the Approximation of the EU
Legislation












Competition Rules / Block Exemption Legislation in MVI
Import And Export Regimes and Common Rules
State Aids
Customs Code
Common Commercial Policy
Preferential Agreements
Abolition of Technical Barriers
Protection of Intellectual, Industrial and Commercial Properties
Direct and Indirect Taxation
Protection of Consumers
Environmental Measures
All Relevant MVI Technical Directives
Development of MVI in Turkey: 1960/2010
1960-1970
1970-1980
License
ASSEMBLY
Protected
Market
DEVELOPMENT OF
COMPONENT IND.
INCREASE IN
CAPACITY
1980-1990
1990-1995
Free Market
Global
Competition
Localization
Modernization
UP-TO-DATE MODEL
EXPORT
1995-2000
Up-to-date Model
FULL INTEGRATION
MANUFACTURING BASE
2000-2012
Transition
Period
Entrence of
Toyota
and Honda
Research & Development,
Design & Technology Management,
Intellectual & Industrial Property
TARGET FOR 2012 : CENTER of EXCELLENCE
SWOT Analysis / I
Strengths
International
Production
Design
Technologies
Component Industry
Weaknesses
And
With
Technological Infrastructure And
Quality To Global Standards
Partnership And High Level Of
Integration
With
International
Manufacturers
Export Experience
Strategically Close Location To
The Emerging Markets
Well
Educated,
Entrepreneur,
Competitive Human Resources
Lower Man Hour Costs Compared
To The EU
Fluctuating Demand
Lack of Long Term Policies
Low Capacity Usage Rate Causing
High Production Cost
Imports
Are
Not
Regulated
Efficiently And Thus Over-imports
High Energy Costs
Lack Of Effective Coordination
Between Vehicle Manufacturers
and Component Industry
SWOT Analysis / II
Opportunities
High Co-operation In R&D Efforts
With Leading World Technologies
Low Car Density Rates Signal For
Potential High Demand In The
Future
Exporting Potential To Surrounding
Markets
The Only Global Production Center
In The Region
Threats
New Production Facilities İn
Other Emerging Markets
Foreign Direct Investment İs
Favoring
Other
Emerging
Markets
High Tax Rates
Fluctuating Local Demand
Increasing Integration With EU
Close Bilateral Relations With G8,
CIS, ECO And Black Sea Economic
Co-operation
Unstable Economy
Excess Of Production Capacity
In Global Arena
MV Manufacturers in Turkey
85 % of
Components
Manufacturers
İSTANBUL
İzmit
Gölcük
Bursa
İzmir
Adapazarı
Ankara
Eskişehir
Aksaray
Adana
Motor Vehicle Manufacturers (2008)
Companies
Ownership
TOFAŞ/FIAT
O.RENAULT
TOYOTA
HYUNDAI ASSAN
HONDA
Partner
Product
Capacity
Vehicle/Year
● Japanese Interest Was First
Shown In Car Industry In
400.000
1994 With Toyota And Then
360.000
Honda
JV
FIAT
JV
RENAULT
P.Cars
FDI
TOYOTA
JV
HYUNDAI
FDI
HONDA
P.Cars Total
FORD OTOSAN JV
FORD
HYUNDAI ASSAN JV
HYUNDAI
KARSAN
Local
PEUGEOT
B.M.C.
Local
Local
CV
M.BENZ TÜRK
JV
M.BENZ
ANADOLU ISUZU JV
ISUZU
TEMSA
Local
Local
OTOKAR
Local
LAND ROVER
M.A.N.
FDI
MAN
CV Total
150.000
100.000
50.000
1.060.000
350.000
25.000
25.000
20.000
20.000
13.000
14.000
8.000
5.000
480.000
Total
1.540.000
● Toyota
Brought
New
Concepts
And
A
Remarkable Motivation To
The Industry
● Toyota-Turkey Became One
Of
The
Important
Manufacturing Centers Of
Toyota In Europe
● Isuzu, Hino And Mitsubishi
Are In Commercial Vehicle
Sector
MVI Integration
Number of Manufacturers 14
Link With Non-EU
* JV/FDI
* License
* JV/FDI
* License
7
(% 72 of 2007 production)
2
(% 2 of 2007 production)
5
1
Local
Link With Non-EU Manufacturers
Link With EU Manufacturers
FIAT GROUP
FORD
MAN
M.BENZ
RENAULT
ROVER GROUP
PEUGEOT
(% 26 of 2007 production)
4
1
Link With EU







5
JV
JV
FDI
JV
JV
L
L





ISUZU
TOYOTA
MITSUBISHI
HONDA
HYUNDAI
JV
FDI
L
FDI
JV
Automotive Component Industry In Turkey:
“An Advanced Supplier Base”

Around 1.000 Component Suppliers: 350 Of Them Are Global Suppliers

International Accreditation: Quality – ISO 16949, Environment - ISO 14001

Well Trained Work Force: Around 250.000

Cost Advantage: High Productivity and Relatively Less Labor Wage

Significant Experience In Their Field

Able To Meet Global Standards

Able To Compete In Global Markets

Experience In Export Activities
History of the Production (x1.000)
1.200
1.100
635
Passenger Cars
1.000
Total
800
Total Production:
3,000
1,100,000
600
in 1963
in 2007
421
348
431
297
400
110
47
200
3
271
175
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0
243
213
High Fluctuations In the Past Have Had A Particularly Negative Effect On The
Development And Competitiveness Of The Industry
Changes in Last 6 Years (x1.000)
1.000
1.400
1.200
Production
1.100
800
706
988
1.000
823
879
600
519
800
534
600
400
830
Exports
X 3.17
347
561
359
400
X 3.17
262
200
200
0
0
2002
2003
2004
2005
2006
1.000
746
2004
2005
20.500
640
14.560
15.000
X 3.65
400
2007
20.000
600
401
2006
Exports / Million $
763
670
200
2003
25.000
Total Market
800
2002
2007
175
10.020
10.000
6.518
5.000
0
11.540
X 4.72
4.344
0
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
Exports Share in Total Production is Over 75 %
1.600
100
%
(X 1000)
1.400
71
Rate of Exports in
1.200
73
64 62 62
Production
1.000
800
71
75
Total Production
% 75
P. Cars
% 80
70
50
30
40
22
200
12 13
5
8
9
30
20
10
3
2
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Exports
10
8
15
37
42
31
37
91
104
202
262
359
508
552
697
820
Production
345
453
269
326
329
400
405
326
468
286
357
562
823
879
988
1.100
3
2
5
12
13
8
9
30
22
71
73
64
62
62
71
75
0
Exports (%)
80
60
600
400
90
0
The Automotive Market is An Unsaturated One
600
510
SMMT / Vehicle/1.000 Inhabitants in 2006
493
391
400
343
361
200
144
138
Turkey
604
WORLD
800
Bulgaria
Hungary
Poland
Spain
Greece
Germany
0
Approximately 15 Million Vehicles Are To Be Sold In Turkey
To Reach To The Level Of Bulgaria In 10 Years
(Whose GDP Per Capita Are Rather Similar)
The Assets & Potential of MVI of Turkey
 Automotive Culture
 High Sense of Quality
 Labor Peace
50 years of production tradition
TQM, Lean Production, 6 Sigma
unionized work force / collective bargaining since
1963
 Qualified, Well-Trained, Motivated Labor Force at Competitive Cost
 Flexible Working Hours
7.5 hours / shift - 3 shifts / day - 6 days / week;






Rate of Absenteeism < 1.5 %
$ 10 billion worth of Investment
Entrepreneurship
Partnership With World-Leading Manufacturers
Experienced Local Component Industry / Supplier Base
Unsaturated Domestic Market With High Potential of Demand
More Incentives on R & D and New Investments
Developed Infrastructure & Services in the Region
Logistics, Energy, Transport, Banking, Communication
 Manufacturing Facilities With State-of-the-Art Technology
What Will Lead to New Investment
● A New Investor Will Search For The Opportunity To Develop New Products At
Moderately Lower Cost.
● All Automotive Products Become Obsolete In The Long Term, Therefore Current
Models Need To Be Renewed Within 2-3 Years.
● So The Continuity Of The Business Would Heavily Depend On The Ability To
Design And Launch New Products.
● In Order To Realize New Projects At Competitive Cost These Are Needed:
 R&D Capabilities (Vehicle And Component Manufacturers)
o More Effective R&D Incentives
 Advantages In Investment Cost
o Project-Based Investment Incentives For Both Vehicle And
Component Industry In Major Exports Projects
Benchmarking With Other Countries / II
1. CHINA
-Tax Vacation Of Two Years
-Tax Discount At 50% For Subsequent Three Years
-Production Activities In Certain Areas Or In Tech Development Enjoy Low
Tax Ratio ( 10%, 15%, 24%)
2. KOREA
-Tax Vacation Of Seven Years For High Tech Investments
-Tax Discount At 50% For Subsequent Three Years
-Royalties Paid For High Tech Areas Are Not Subject To Withholding Tax For
5 Years
Benchmarking with other countries / I
1. IRELAND
- Active income is subject to 12,5 % corp.tax as for Passive income 25%
2. HUNGARY
-10 years tax vacation as of the year of the investments completion for the
investments more 33.3 Mil. USD
3. CZECH REPUBLIC
-Tax vacation of from 5 to 10 years
4. SLOVAKIA
-5 years tax vacation
-50% tax discount for the investors increasing their paid in capital at 4.5
million EUR at the end of tax vacation period
5. CROTIA
Investment
(Million $)
Employee
Amount
Tax Ratio
(%)
1.1-2.3
30-50
7
2.3-7
50-75
3
7+
75+
0
Incentives For Export Oriented Investments That Are Aimed At
The Development And Production Of Competitive Products
Were Abolished
Communiqué
2002/1
The Tax Incentive That
Was Previously 26,4 %
Decreased To 13,2 %
Act
4842
Investment Sum
100
100
Investment Allowance (%)
200
40
Corporate Tax Exemption (%)
200
40
(33% - 19.8%) x 200%
(33% - 0%) x 40%
= 13.2 %
Provided Tax Incentive
Net Allowance Rate (%)
=
26.4 %
(33 % - 19.8 %)
=
(33 % - 0 %)
13.2 %
= 33 %
* Corporate Tax (%)
30
33
* Fund Contribution (%)
10
0
- 19,8
0,0
* Withholding Tax
(%)
According To Act 4842, New Economic Investments That Will Deliver
Internationally Competitive Vehicle Models With High Added Value
Requiring The Deployment Of High Manufacturing Technology, Fall Within
The Scope Of “General Incentive Regulations”
Recent Incentives Proposal On Investment
 Decrease Corporate Tax Rate was Reduced From 30 % To
20 % And Cancelled Investments Allowance 40 %
 Together With Tax Council, OSD Proposes The Following
Scheme:
Min.
Investment
(million YTL)
25
100
200
400
|> 600
Min.
Min Exports Corporate
Employment (million YTL) Tax Rate (%)
100
200
400
800
> 1200
5
10
50
100
> 150
10
8
6
4
2
Recent Developments on R&D Activities
 A New Incentive Scheme is Now Covering R&D Activities in Companies to
be Effective This Year Such As:
 100 % Deduction of R&D Expenses From Corporate Tax Came into
Operation in 2008
 Tax and Social Security Funds Payment Exemption for Those Working in
R&D Activities
 Government Assigned Yearly $ 300 Million to TUBİTAK in Order to Support
R&D Activities and Targeted to Increase R&D Expenses up to 2 % of
GNDP in 5 Years
 Automotive Technology and R&D Center – OTAM(*) was Established in
Istanbul Technical University-ITU with $ 12 Million to Start off
 TUBİTAK-MAM is Providing Large Scale of Basic Services for R&D
(*)
OSD, ITU (Istanbul Technical University) , TAYSAD (Assoc. of Component
Manufacturers), UIB (Union of Vehicle & Component Exporters) are the Partners
of OTAM
Automotive Technology / R&D Center OTAM

OTAM was Established by (OSD), The Scientific and Technical Research Council of
Turkey (TÜBİTAK) and Istanbul Technical University (İTÜ) in 2004
 OTAM is Formed as an R&D Company in 2007 (OSD, TAYSAD, İTÜ, UİB) to carry
out of R&D and Type Approval Tests in Cooperation with ITU
 OTAM is Mainly Specialized in the Areas of Engine, Emission, Vibration, Noise and
Chassis / Body Analysis
Offices
IC Engines Laboratory
(1640 m2)
(1445 m2)
Vehicle
Laboratory
(1640 m2)
Prospects of the Turkish Automotive Industry
o In The Short Term
Production:
Over 1,0 Million
Exports:
Over 0,8 Million
o In The Medium Term Production:
Exports:
Already Realized
2,0 Million
1,5 Million
Can be Achieved
Direct Employment Of 600,000
Total Exports Of $ 50 Billion
By Means of Additional Investment At Least $ 5 Billion
The Strategy and Action Plan
● Optimizing Capacity Utilization
 Full Use of Domestic Market Potential
 More Activities in Exports Markets
● Increasing Competitiveness
 Cost Reduction By Means Of Productivity Improvements
 Encouraging More Innovation in The Industry
 Better Management in Supply Chain
● Strengthening Assembler/Supplier Strategic
Partnerships
 Establishing Long-term Partnerships
 Effective Cooperation On Supply Chain
Current International Trophies
● Ford OTOSAN, Among European Ford Factories, Has Been Selected As The Best Motor
Vehicle Manufacturer In The Last Five Years.
● Toyota Factory In Adapazarı Was Selected The Best Worldwide Toyota Manufacturing Plant In
2006.
Ford Connect
“VAN of the year” in 2003
Production: İzmit
FIAT Doblo
“VAN of the year” in 2006
Production: Bursa
Renault Clio III
“Car of the year” in 2006
Production: Bursa
Ford Transit
“ VAN of the year” in 2007
Production: Kocaeli
FIAT LINEA
“Autobest 2008”
Production: Bursa
TEMSA DIAMOND
“Busbuilder of the year 2007”
Production: Adana
FIAT FIORINO
“Van of the year” in 2009
Production: Bursa
TURKEY IS A CENTER OF
GLOBAL AUTOMOTIVE PRODUCTION
And
IS TO BE A “CENTER of EXCELLENCE”
TEMSA
IS A BUS PRODUCER
Thank You For Your Interest
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