Despite positive figures, Turkish automotive industry fears currency shock

Despite encouraging figures for the first quarter of the year, the Turkish automotive industry fears another currency shock. The global semiconductor chip shortage, weak lira, and pandemic uncertainties have cast a shadow over those signs of recovery reported by the Heavy Commercial Vehicles Association (TAİD) and Automotive Industry Association (OSD).

K. Murat Yıldız / Duvar English

Turkey’s economic downturn, exacerbated by the coronavirus pandemic and the continuous depreciation of the lira, impacted the sale of heavy commercial vehicles according to data from the Heavy Commercial Vehicles Association (TAİD), as the number of trucks sold in April of this year fell 18 percent compared to the 10-year average.

Turkey's heavy commercial vehicle industry, which includes the main industry, sub-industries, distributors, authorized dealers, and service points, employs over 150,000 people.

When compared to the average April sales over the last ten years, the heavy commercial vehicle market increased by 7 percent. Towing vehicle sales increased by 25 percent, while sales of trucks decreased by 18 percent.

According to data from TAİD, heavy commercial vehicle sales have slowed significantly since 2015. In the early 2010s, an average of 35,000 vehicles were sold annually; by 2016, that number had dropped below 20,000. Experts believe that factors such as economic slowdown over the last five years and the depreciation of the lira played a significant role.

Experts are pointing out the rising commodity prices in international markets and an increase in the cost of heavy commercial vehicles due to the lira losing value against foreign currencies. This resulted in decreased demand for new heavy commercial vehicles.

Domestic vehicles more popular than imported ones

Between January and April 2021, 5,143 of the sold heavy commercial vehicles were domestically produced by Ford Trucks and Mercedes while the remaining 3,047 were imported vehicles produced by companies like IVECO, Scania, and Renault.

Meanwhile, despite the pandemic, one of Turkey's oldest and most important industries, the automobile industry, has posted positive results and showed signs of partial recovery compared to last year when production halted.

According to the Automotive Industry Association (OSD) data, total automotive production increased by 28 percent in the first four months of the year compared to the same period the previous year, reaching 415,187 units, while automobile production increased by 18 percent to 288,211 units.

The total production of tractors was 470,859 units. The automotive industry's capacity utilization rate was 69 percent during this time. Capacity utilization rates in light vehicles including automobile and light commercial vehicles were 69 percent, with 62 percent in heavy commercial vehicles, and 79 percent in tractors, according to the vehicle group.

Production and market size increased compared to Q1 2020

Moreover, commercial vehicle production increased by 52 percent from January to April compared to the same period the previous year, as during this period a total of 162,976 commercial vehicles were produced, according to OSD data.

Additionally, the commercial vehicle market increased 93 percent as the light commercial vehicle market posted an increase of 88 percent from January to April of the previous year.

Domestically produced vehicles accounted for 39 percent of all automobile sales during this period, while domestic vehicles accounted for 54 percent of the light commercial vehicle market.

Due to pandemic, travel restrictions and lockdowns in the first four months of the year resulted in the bus market dropping by 33 percent and the minibus market dropping by 55 percent.

Automotive industry still on top

According to data from the Turkish Exporters Assembly (TİM), automotive industry exports remained in first place in the January-April period, accounting for 15 percent of total exports as automobile exports increased by 6 percent to 212,56 units. Tractor exports increased by 110 percent during the same period, reaching 8,469 units.

“The automotive industry is Turkey's most important sector, surpassing the textile industry, which had traditionally led the country's economy. Even in a particularly bad year for the economy due to the pandemic, Turkey maintained its top position in terms of exports,” journalist and economist Dr. Cüneyt Akman told Duvar English.

Global semiconductor chip problem

Pointing to the ongoing worldwide semiconductor chip shortage, which is expected to cost the global automotive industry 110 billion dollars in revenue in 2021, Akman noted that “despite global supply shortages in chip production this year, the Turkish industry and exports grew at a rapid pace in the first quarter, as did the automotive sector compared to the same period in 2020.”

In terms of total employment, automotive companies with major foreign partners generate around 50,000 jobs, while the automotive sector as a whole, including the sub-industry, employs nearly half a million people, Akman underlined, adding that “If Turkey and the automotive industry do not face another much-feared and expected currency shock in 2021, they will show signs of recovery and have the potential to recover from the 2018 currency shock and recent negative effects of the pandemic.”

“Despite its shortcomings, such as not creating a domestic automobile brand and cheap labor, Turkey is making significant progress in this area, particularly in the supplier sector. Furthermore, the sector as a whole is improving its technology and localization rate. It is also becoming increasingly important in terms of employment,” Akman concluded.