Brighter days yet to come for Turkish automotive market
Posted by meb at February 22nd, 2007
by Hakan YILMAZ, Business Analyst, Experian–Scorex, Turkey
This article was published in Motor Finance, December 2006
Following two decades of significant economic transformation, with a minor setback with the economic crisis of 2001, Turkey has seen progressive economic growth. The extensive economic reforms, as well as social and political changes have enabled the start of negotiations for accession to the European Union, although this process is expected to take more than a decade.
Nowhere is this more true than in the automotive industry, with the sector seeing continuous growth for the last three years and soon to become the largest manufacturing export industry. With a thriving local market and exports of half a million vehicles to mostly EU countries, Turkey has become a significant manufacturing and sales center for automotive organisations. It is the only country within the surrounding geographical area to have a sophisticated automotive market. All the international arques manufacture and sell vehicles in Turkey with sales led by Renault, followed by Ford, Hyundai, Tofas-Fiat, Opel, Toyota, Volkswagen, Peugeot, and Kia.
Past turbulence
The economic crisis of 2001 caused a significant dip in demand; however, following a profound programme of reform backed by the International Monetary Fund, the economy improved and with it came the delayed demand for vehicles in the country. Following an explosive increase in demand in 2003-4 the market is now, as expected, slowing down, with growth of less than three per cent in 2005 compared to up to 90 per cent in previous years. Despite this slowdown there is still significant potential in the market. Over 750,000 vehicles were sold in 2005; however, car ownership is still only at 10 per cent, 30 per cent below the global average and significantly less than Turkey’s close neighbour Greece,with nearly 50 per cent ownership, and even the 35 per cent ownership level found in Bulgaria (3). With consumer demand very closely linked to economic performance and interest rates, the current stable financial situation seems promising for the sector. However, 2006 so far has seen demand falling slightly.A major concern for consumers is the price of petrol, one of the highest in the world, which has also led to a growth in demand for diesel vehicles.
Recent fluctuations in the over-valued Turkish Lira against the Euro, plus the threat of political instability and rising interest rates, have led to increases in vehicle prices and a small collapse in the market.
Credit checks
The automotive finance sector is relatively advanced, helped by the reformed banking system and economic growth. There is widespread use of advanced credit risk assessment techniques at the point of application, including the use of credit bureau checks. Techniques have been adopted from more sophisticated financial markets, including the use of niche scoring models for the automotive sector. However, the recent changes have put pressure onto the vehicle financers as consumers search for the best rates among lenders. 65 per cent of cars in 2005 were financed by consumer loans (4), with this market dominated by the big banking organisations. Finance houses have about 25 per cent of this market, a share not likely to increase as they have several competitive disadvantages, particularly in funding.
Captive ventures
The manufacturers also have a share of the motor finance market with Volkswagen and Fiat the first to enter the consumer finance business, gaining an advantage with their partnerships with the leading Turkish finance groups Dogus Group and Koc Group respectively. These finance houses already operated in a number of sectors including retail finance, media and construction. Other manufacturers have followed suit, increasing competition in the financing market despite the current difficult conditions. Overall there is a positive outlook for the automotive manufacturing and sales sector in Turkey with brighter days yet to come, helped by the changes in the economy.The long-term potential of trading opportunities for Turkey as a member of the European Union holds great promise for the future.
1. www.tuik.gov.tr Republic of Turkey, Prime Ministry, Turkish Statistical Institute
2. AMA – Assessment of the Year Report 2005, Automotive Manufacturers Association
3. BUSAID (Bursa Industrialists and Businessmen’s Association), Automotive Sector Report 2005
4. AIA The Assessment of Vehicle Loans Report 2005, AMA
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