Turkey’s Auto Market Moving Ahead Despite Tax Drag

ISTANBUL – Turkey's automotive market grew strongly in 2013, driven by solid economic growth and a government incentive scheme designed to boost investments in the sector. However, high taxes are limiting growth and imports still dominate the market.

According to data from OSD, the Turkish automotive manufacturers group, light-vehicle sales in 2013 grew 9.7% to 853,378, compared with 777,761 in 2012. Car deliveries jumped 19.5% to 664,655, although the light-commercial-vehicle market contracted 14.8% to 188,723.

But with Turkey enjoying a free-trade agreement with the European Union for non-food goods, the market is being targeted by importers, especially from Europe, who supply a large majority of vehicles sold in the country, says Ercan Tezer, OSD general secretary.

"We are still trying to survive in the local market against approximately 80% imports of passenger cars," he tells WardsAuto.

Neil King, head of the auto-industry division at London-based market researchers Euromonitor International, says last year "total vehicle and passenger-car imports increased more than sales in volume terms, thus increasing the imports’ share of the Turkish market from 63% to 69% overall and from 74% to 78% for passenger cars."

The upside of the trade deal is exports, and Tezer notes Turkey is the leading exporter of automobiles to the EU among non-EU countries. He attributes this growth to Turkey's customs union agreement with the EU adopted in 1996.

Tezer says that while the local automotive industry is benefiting from steady economic growth – gross domestic product rose an estimated 3.7% in 2013, with similar expansion expected in 2014 – "car demand is limited because of high taxation."

In addition to the current 18% sales tax, motor-vehicle purchases also are subject to Turkey's special consumption tax, whose rates vary according to automobile type and are calculated using a variety of criteria.

These can be punishing, Tezer points out. For passenger cars with an engine capacity not exceeding 1.6L the tax is 45%, for those with engine capacity between 1.6L and 2.0L it is 90% and for those exceeding 2.0L it is 145%.

Passenger vehicles also are subject to a motor-vehicle tax based on the vehicle’s engine capacity and age. Current rates vary 58 Turkish lira ($26) for a vehicle with an engine no larger than 1.3L or aged 16 years or more, to TkL19,541 ($8,765) for a vehicle with an engine 4.0L or more and aged 1-3 years.

Sedans Most Popular

OSD data shows that in 2013, 86% of Turkey’s car market consisted of vehicles in the A (minicars), B (small) and C (midsize) segments, whose tax ratios are low. Midsize cars achieved the highest sales numbers, with 339,034 units and a 51% market share, followed by small cars, with 229,547 deliveries for a 34.5% share.

The most popular body type was the sedan, which recorded 296,240 sales for a 44.6% market share, followed by the hatchback, with 252,179 for a 37.9% share.

Deliveries of SUVs totaled 76,616 units, an 11.5% share.

King tells WardsAuto the taxes’ impact on motor-vehicle sales is particularly clear when looked at in combination with household income.

"In many markets, light-vehicle sales equate to 10% of the number of households with over $10,000 annual disposable income," he says. "But in the case of Turkey, the consumption tax is prohibitively high and thus suppresses new-car demand, whereby light-vehicle sales only equate to about 10% of the number of households with over $25,000 annual disposable income."

However, King cites Euromonitor data forecasting the number of households in Turkey with annual disposable income exceeding $25,000 to increase to more than 13 million by 2020.

"In terms of income distribution, higher-value cars stand to fare better than the overall market,” he says, “as households with over $65,000 annual disposable income are forecast to grow at a faster rate than households on lower incomes that would support mass-market demand."

Tezer says Turkey's automotive industry has been boosted by government incentives introduced in 2013. The program provides a range of inducements for foreign and domestic automakers to invest in the industry, ranging from tax discounts and exemptions from value-added-tax and customs tax, to government investment subsidies.

He says the new program has provided "a good momentum to increase investments for capacity as well as for new-model and technology investments," adding annual motor-vehicle production capacity in Turkey is expected to reach 1.7 million units in 2014.

Tezer notes a number of foreign automakers are increasing their investments in Turkey, most notably Ford Otosan, jointly owned by Ford and the Turkish industrial conglomerate Koc Holding, which he says has an annual manufacturing capacity of 450,000 commercial vehicles.

Turkey's industry also is progressing due to a high level of production flexibility. He notes many LCV makers can handle 400 to 500 variants of the same model on a single assembly line, adding local manufacturers offer "a custom-tailored type of production which meets individual demands."

Turkey's car exports grew in 2013 after a decline in 2012. About 80% of the country’s exports go to the EU.

In 2012, Turkey's exports of motor vehicles to the EU dropped 8.9% to 422,441 units, with the value of the exports falling 4.8% to €4.879 billion ($6.8 billion), according to the ACEA, the European automakers’ group. However, in the first 11 months of 2013 exports totaled 421,031 units, whose value exceeded the full-year 2012 total by €5 million ($694 million).