Those robust enough to venture out onto Istanbul’s choked roads might react with some incredulity to suggestions car penetration rates could rise substantially, but it’s important to take Turkey’s business and cultural capital as a one-off and not representative of the country as a whole.
Of Turkey’s 80m population, an astonishing one quarter live in Istanbul, accounting for this megalopolis’ massive overcrowding and staggeringly dense traffic jams. Quite what this means for business efficiency is a headache with which the Istanbul Chamber of Commerce wrestles daily, but the rest of the country is still ripe for development.
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Turkey has just 200 cars per 1,000 population compared to between 500 and 600 for Western Europe, while a high car parc age could also act as a purchase trigger in a country where GDP grew 7.4% last year; substantially more than Western Europe.
Just-Auto spent a week in this most fascinating of countries – which has undergone seismic upheavals in the last two years culminating in a failed coup d’etat and the migrant crisis – while only last week Turkey announced dates for Presidential and Parliamentary elections.
We visited suppliers, government bodies, component associations and the Turkish Automotive Distributors Association (ODD), whose executive coordinator, Hayri Erce talked to Simon Warburton in his headquarters in the Besiktas district of Istanbul.
One of Erce’s key issues is addressing high car tax in Turkey. In Europe there is no VAT but Ankara imposes 18% VAT plus 45% special consumption tax. Discussions are ongoing to lobby the Turkish government to reduce this and stimulate demand, but it seems tax collection challenges mean the administration may be reluctant to relax fiscal rules.
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By GlobalDataDespite the punitive tax rates, it appears Turkish consumers’ appetite for vehicles has not been dented and sales have improved to around 1m per year.
Although no new OEMs have arrived in the country straddling Europe and Asia across the Bosporus for 18 years, there are nonetheless heavyweights such as Toyota, Ford, Hyundai and Renault among others, which have made Turkey their home for some time.
These OEMs can tap into the twin drivers of an average age of just 30 in Turkey while impressive GDP growth rates may mean more consumers are able to purchase big ticket items – as long as they are potentially incentivised by a more attractive tax landscape.
JA: I see you have just published numbers showing the passenger car market in Turkey rising 1.5% in the first quarter of this year, although LCV numbers decreased 10%. For March, the corresponding figures were +7.5% and -9%. Are you pushing your case to the Turkish government about tax?
HE: We made a lot of simulation [modelling impact of tax reduction] and explained to the government [about tax]. It is clear when you reduce the tax level it can easily mean penetration rates per 1,000 population rising fro 200 to 250-300, dependent on the level of tax.
One of the problems with Turkey is the foreign trade deficit. We don’t have any oil and the current deficit is around 5% of GDP…therefore the surplus credit by the automotive industry [of] around US$6.5bn is [an] extremely important contributor to the decrease of the current account deficit.
JA: How difficult or otherwise is access to credit in Turkey?
HE: Availability of credit is not difficult, only the cost issue. Traditionally, two-thirds of the market was consumer credit, but in the last years because of the interest rate, around 55% of sales are through finance and the rest through cash. Turkey is still a cash market.
The interest rate is 12%,13%,14%…but for car buying it is 16%,17%, it is another obstacle. Inflation is now in two digits around 11%. Now the government is starting a programme to lower inflation – in the Ministry of Finance they established some committees especially in the food and beverage industries because food is an important contributor to inflation.
I can see the government timetable is to grow GDP by around 5.5% – if every year it means the Turkish automotive market will continue to grow.”
JA: To what extent does that car parc age have an effect and are there any specific government initiatives which can stimulate the market?
HE: The car parc is aged and one third of the parc is more or less more than 20 years old. If you introduce a programme of renovation with a scrappage programme, there is potential [and] the government is introducing a new programme to prepare a [scrappage] law. I talked to them [Ministry] and they will issue the directive in mid-April.
JA: Are you optimistic for the future of the Turkish market?
HE: Turkish consumers are quite enthusiastic to buy cars, but the tax is putting pressure. If the government introduces a kind of tax moderation programme, then [the] potential is there.
