Turkey’s automotive sector hits rock bottom ahead of Italian-designed ‘domestic’ car unveiling

As millions in Turkey wait with bated breath for the country’s minimum wage committee to announce a wage hike following their last meeting on Dec. 26, the government is working hard to shift the public’s attention by preparing for the unveiling of Turkey’s first domestic car the following day.

The unveiling of the vehicle, which has been brought from its design centre in Italy with great care and whose mysterious photographs have been shared on social media by the Ministry of Industry and Technology, will take place with a ceremony attended by President Recep Tayyip Erdoğan at the Marmara Research Centre (MAM) of the Scientific and Technological Research Council (TÜBİTAK) in Gebze.

The electric automobiles to be produced by Turkey's Automobile Joint Venture Group (TOGG) have been hailed as a “domestic-national” effort, but in fact their design was completed by Italian firm Pininfarina.

The 89-year old company is widely recognised for its designs for Ferrari and Lamborghinis but has also signed its name to products of automotive giants such as Volvo, Peugeot and Fiat.

As we count down the hours for the unveiling of Turkey’s domestic car, we still do not know where the factory set to produce the vehicle beginning in 2022 will be built.

There are claims that Turkey’s domestic car maintains a striking resemblance to a car produced by Pininfarina for Vietnamese automobile producer VinFast.

Following Turkey’s internationally condemned military offensive in north Syria launched in October, German automotive giant Volkswagen suspended plans for a 1.3 billion-euro ($1.4 billion) plant in western Turkey. The facilities in the Manisa province were expected to produce 300,000 automobiles in the initial phase of the project, but the company has since turned its attention to Slovenia as an alternate location. 

The sharp decline in sales, contraction in the market and the decision by Volkswagen to throw in the towel on a Turkey plant are some of the biggest hurdles facing Turkey’s automotive sector.

The industry has been among the worst affected by Turkey’s economic downturn that began last year in August, when the lira sunk to a record low against the dollar, pushing up inflation and interest rates and leading to a slump in consumer confidence.

Sale of motor vehicles totalled 339,546 units in the first 10 months of this year, pointing to a 29 percent drop compared the previous year. A total of 641,550 units were sold in the whole of 2018, decreasing 35 percent compared to 2017.

Turkey’s automotive sector has entered a serious bottleneck over the past three years with sales dropping further in each consecutive year. Despite a decrease in interest rates on car loans since August, sales have continued to plummet.

The same can be said for the other engine that drives Turkey’s economy, housing.

Housing sales gained slight traction following the slash of mortgage loans to under 1 percent on the heels of the Central Bank’s back-to-back rate cuts, forced on the bank by President Recep Tayyip Erdoğan.

In 2018, a total of 1,238,558 houses were sold between January and November with this figure dropping by 91,898 in the first 11 months of this year, to 1,146,655.

The government’s efforts to reinvigorate house sales by changes made in regulations also failed to produce results.

Last year, the value of real estate purchases that would allow foreigners to become Turkish citizens was lowered to $250,000. However, sales to foreigners dropped this year by 14.6 percent to 3,988. November saw Iraqi nationals maintain the top spot as real estate purchasers in Turkey with 575 sales, followed by Iranians with 500, Russians with 300, Afghanis with 216 and Saudi nationals with 174.

All of these signs point to the likelihood of both sectors remaining stagnant for some time to come, and that the soaring bankruptcies and filing for bankruptcy protection in the construction sector will persist.

Confidence indices, too, are telling of the despair Turkey’s economy will likely face during the next 12 months. Consumer confidence in Turkey fell to 58.8 points in December after two months of increases, ending the year barely changed from 2018.

The latest official statistics show a decline in expectations for household finances and for the general economic situation, as well as pessimism regarding the outlook for employment. But Turkish Statistical Institute’s (TÜİK) November figures indicate a slight increase in the probability of saving in the next 12 month, which in fact contradicts the expectation of other indices.

The contradiction strengthens widespread mistrust among the public to data compiled and shared by TÜİK, which changed its minimum wage calculation method at the last minute and suggested a 5.4 percent annual inflation rate to the country’s minimum wage commission.

But improved expectations on savings can also be the result survey participants’ fears to express their real opinions. 

The public’s declining confidence on TÜİK and Central Bank is a serious problem, but what is most grave is the state of Turkey’s construction-housing and automotive sectors. The present picture does not offer even a glimmer of hope.