Volkswagen abandons $1.1 billion Turkey factory plans

German carmaker Volkswagen abandoned plans to build a factory in Turkey due to the economic impact of the coronavirus pandemic.

The slump in demand for cars across the globe means that adding more capacity is “unnecessary from today’s perspective,” Volkswagen said in an emailed statement on Wednesday, according to German media including the Handelsblatt newspaper.

Volkswagen had suspended plans to build a factory in the industrial region of Manisa in western Turkey last year after the Turkish government ordered troops into Syria to battle Kurdish militants allied with the West in the fight against Islamic State (ISIS).

The German company was in the late stages of negotiations with the Turkish government to build the $1.1 billion facility, which would have been the largest investment in the country’s automotive industry in more than two decades. The factory was to serve as a production hub for Volkswagen in the Middle East and other nearby markets and the firm had registered a local unit to handle the business.

Volkswagen said it would now produce new cars at existing facilities instead.

Turkey has been seeking to draw more foreign direct investment to its economy in order to help alleviate pressure on its beleaguered lira, which slumped to a record low against the dollar in May, and to help elevate the country’s status as a regional economic powerhouse.

FDI in Turkey has slumped over the past decade, partly due to a worsening human rights record, a failed military coup in 2016 and concerns about the rule of law and financial stability.

The investment would have been the first by a German carmaker in Turkey, though Mercedes has a production facility for buses in Istanbul. Fiat, Renault, Hyundai and Honda are among foreign firms producing motor vehicles in the country.