Automakers such as Ford, Toyota and Fiat Chrysler Automobiles are being hit hard by Turkey’s economic crisis.
Light vehicle sales in the country fell by a third in 2018 after prices for new vehicles rose in response to the collapsing value of the Turkish lira.
Ford of Europe CEO Steve Armstrong said the currency situation is “significant external headwind” for the company as it tries to reverse its European losses.
Ford builds Transit and Transit/Tourneo Custom light vans in Turkey with joint venture partner Otosan and has 25 percent of the local van market. Including cars, Ford had a 12 percent market share in the country in 2017.
Toyota expects the Turkish vehicle market to almost halve in 2019 to 550,000 from highs of one million in 2016 and 2015. “The Turkish market has been quite tough in terms of exchange rate pricing and volume will come under pressure,” Toyota Motor Europe CEO Johan van Zyl said.
Toyota doesn’t benefit the weak lira in terms of exports because it buys parts in euros. The main financial hit for Toyota comes from the shrinking market and because the automaker has to absorb some of the price increases for locally sold cars, van Zyl said.
Toyota builds the Corolla sedan in Turkey for the local market and export, and recently invested $400 million to produce the CH-R compact SUV for export to Europe.
Fiat Chrysler and Renault’s joint ventures are also vulnerable to the Turkey’s downturn, said Carol Thomas, analyst for central and eastern Europe at LMC Automotive.
Among other models, Fiat builds the Tipo/Egea compact car in Turkey and Renault produces the Clio small car.
Inflation, interest rate hike
“The domestic market has been hit hard by the exchange rate, the spike in inflation, and the large upward adjustment in interest rates,” Thomas said.
The Turkish market could fall to 609,000 vehicles in 2018 and as low 450,000 in 2019, LMC said, although the firm could revise that figure upward if Turkey extends tax cuts to stimulate demand into 2019.
Sales fell 34 percent to 543,231 vehicles in the first 11 months, the Automotive Distributors Association said earlier this month. November sales plunged 42 percent to 58,204.
Vehicle production will fall to 1.5 million this year from 1.66 million in 2017 and decline to 1.4 million in 2019, LMC forecasts. Production declined 8 percent in the first 11 months to 1.43 million. Exports were flat during the period at 1.22 million vehicles, Turkey's Automotive Manufacturers' Association said.
Turkey has attracted automakers as a low-cost production location, with a healthy supply of skilled and semi-skilled workers and a central location for easy access to the European Union, Eurasia and the Middle East.
"Energy is significantly less expensive than in Europe, and Turkey is quite close to Europe, so it's easy to export there," said Fawad Ahmad, an analyst at IHS Markit.
Automakers have localized production to build cars specifically tailored to Turkish buyers, who prefer sedans to hatchbacks favored in Europe. Sedans account for half the market.
Sales of Renault and Dacia vehicles in Turkey fell 34 percent to 100,993 in the first 11 months of 2018, according to JATO Dynamics market researchers. Ford’s sales of vans and cars were down 39 percent to 57,692. Fiat Chrysler's volume dropped 42 percent to 60,450. Toyota brands sales dropped by 19 percent to 30,479.