Auto industry buoyant despite Turkey’s woes  

Reuters/Osman Orsal

• Production up 8% so far in 2024
• Rise continues from last year
• Turnaround after years of falls

Production in Turkey’s auto industry is continuing to rebound after four years of falls, despite soaring interest rates dampening domestic demand and the country’s volatile currency making it tough for automakers to plan their activities.

Turkey is the world’s 12th biggest automaker, the country’s government says. It made 242,000 vehicles in the first two months of 2024, up 8 percent year on year.

This continues the rise in output seen last year, when the industry made 1.5 million vehicles, 9 percent more than in 2022.

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Toyota, Stellantis, Volkswagen, Ford and Mercedes Benz are among the international automakers with factories in Turkey, often in partnership with local companies, according to the country’s industry association.

In 2023 about 30 percent of vehicles made in Turkey were for domestic sales, the government estimates.

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• Turkey’s exports hit all-time high of $256bn in 2023

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“There used to be strong demand for new cars in Turkey because they were seen as a hedge against inflation, but consumers relied on bank loans to fund their purchases and the central bank has imposed much tighter restrictions,” said Arda Tunca, an independent Turkish economist.

“So, demand has fallen dramatically and automakers are struggling to sell their domestic inventory.”

Turkey’s president, Recep Tayyip Erdoğan, long claimed high interest rates were the cause not the cure for inflation, contrary to conventional economic theory. But since his re-election last May, Turkey’s central bank has raised the one-week benchmark interest rate to 50 percent, from 8.5 percent less than a year ago.

Vehicle loan rates were 43 percent as of mid-March, 10 percentage points higher than in June 2023 but considerably below annual inflation.

Samir Cherfan, chief operating officer at Stellantis Middle East and Africa, whose brands include Fiat, Chrysler and Peugeot, said: “The consumer will buy if he believes it’s a good deal versus what will happen tomorrow.

“So, it’s not a question of how much inflation or how much forex. Sometimes for them having a car is safer than having cash at the bank because of these macroeconomic conditions.”

Annual inflation hit a 17-month high of 69 percent in March, although rate rises have helped steady the lira.

Turkey’s currency has fallen 93 percent versus the dollar over the past decade and 40 percent in the past 12 months, but has declined a relatively modest 9 percent in 2024.

“The direct consequence of that is the Turkey market is highly volatile and things can change in days. So, to operate in Turkey, you need to have extremely agile and skilled teams,” said Cherfan.

“You can have any time a decision [by the government] that changes the rules of the game. So, in Turkey you operate with low stock.”

The extent to which the lira’s plunging value raises the costs of manufacturers’ raw materials depends on where these are sourced, said Ryan Bohl, a senior Middle East and North Africa analyst at the RANE Network.

“If they’re sourcing materials from within Turkey itself or countries like China and Russia, there’s still a cost advantage versus Western components,” he said.

“Turkish cars are cheap and that’s partly thanks to the lira’s slump. While a declining lira is nominally bad for most Turks, it can be a positive for specific industries such as automobiles and electric appliances.”

Turkey’s vehicle production reached a peak of 1.7 million units in 2017 before falling for four successive years.

Last year one million Turkish-made vehicles were exported, up 5 percent on 2022. Ford was the top exporter with 311,000, followed by Renault (230,000), Hyundai (205,000), Toyota (185,000) and Stellantis (60,000).

Tunca said: “The car industry’s main challenge is managing FX rates. Recently, the lira has been stable, but that won’t last, because Turkey is struggling to get funds internationally. 

“Automakers are extremely cautious on their production plans, because they have to manage their FX positions extremely carefully.”