Clash Between US And Turkey Issues Warning Shots For Turkish Auto Factories

With the collapse in value of the Turkish lira and the tension between US and Turkey still rising, the automotive industry in the country is bracing for some potentially serious consequences.

Vehicle production in Turkey has grown steadily over recent years, to around 1.5 million units annually. But the new political turmoil fires a warning shot for Turkey’s automotive industry, reports Automotive Logistics.

Ford runs there the only European factory for the Transit, along with the Transit Courier and the large Cargo truck, which is made for the local market. Fiat also builds cars and small vans there, with some of them sent to the US under the Ram brand.

Toyota builds the C-HR crossover in Turkey, which is then shipped to Europe and the US, while Renault’s local factory is the main production location for the Clio, as well as some bodystyles of the Megane. Hyundai uses Turkey as its European supply point for small models like the i10 and i20, planning to add an SUV to the production facility from 2021.

In total five manufacturer run big manufacturing operations in the country, along with a small Honda factory which also ships cars to Europe but mainly supplies the local market.

Turkey’s automotive industry accounts for around $30 billion in export value this year, making it the largest of any industry in the country. The fall of the Turkish lira makes exports more competitive in theory but imported parts will be more expensive. The vertically integrated nature of some of the Turkish factories will help with that, but Toyota, Ford and Honda import their engines from the UK.

The three car makers can mitigate such financial hurdles but having such important production facilities in a market that’s currently in a political and economic tension and uncertainty is hardly an attractive proposition.

Up until now, the manufacturers not only have maintained their investments but some also added to them. Hyundai’s move to add a new SUV shows that the Korean company expects the country’s current problems to go away.

Ford said it will invest $52 million for the expansion of its Turkish plant, while Honda is doing the same in order to make its factory capable of building the new Civic sedan. The main problem however of the Turkish automotive industry is that there has been no greenfield investment in the sector for over 20 years.

BMW is building a new plant in Hungary, Mercedes also expands its operations there, while PSA and Renault are building massive facilities in north Africa. By contrast, Turkey has to make do with the existing operations and their add-on investments.

With President Trump slapping a 25 percent tariff on Turkish steel and Turkey responding with a range of tariffs on US imports, including cars, there’s little chance that the country will win a major all-new investment for some time to come.

On top of that, the Turkish auto industry will also have to deal with the uncertainty of Brexit. Despite Turkey being outside the EU, its economy will be far from immune to the practical consequences of Brexit.

The whole situation might turn to be alright in the end but, given all the issues, the Turkish auto industry has to worry about its future.