Waiting for the brand that will put Turkey in the driving seat,
ARTICLE IN BRIEF: A look back at the history of the automotive industry in Turkey, and an assessment of future plans for a Turkish-branded car. The auto industry’s journey dates back to the early years of the 20th century, when the Turkish Republic was bo
The Turkish automotive industry is at an historic turning point, or at least its actors are. A natural development and succession into a new phase for an industry -- any industry -- has become a national priority of disproportionate importance in the context of the Turkish automotive industry. The reason lies in the history of the industry and the arduous road it had to travel in order to reach its present prestigious position. The industry was on the brink of collapse in 1995, in the days that preceded Turkey’s joining the customs union with the EU. Politicians, industrialists, investors, the public; everyone had written it off as hopeless in the face of international competition. Yet today, some 15 years after those grim days, the automotive industry has emerged as the most important industrial sector in Turkey. The automotive industry is now the country’s biggest export earner and the sector is lacking just one thing; a Turkish-made and Turkish-designed car. But this may soon change.
The auto industry’s journey dates back to the early years of the 20th century, when the Turkish Republic was born out of the ashes of the Ottoman Empire, with a population impoverished by centuries of war and defeat and a young administration with an overwhelming number of urgent priorities. Everything needed to be created from scratch. In a post-industrial revolution world, Turkey still had to build a nation from the bottom up. Although the auto industry enjoyed some spurts of activity in the decades following the creation of the nation, the total lack of a market meant these were not sustainable; early attempts to assemble vehicles were short-lived.
This lack of meaningful activity continued until the late ’50s and early ’60s, which saw the first milestones for the Turkish automotive sector, when the assembly companies that now form the backbone of the industry started to be established. The joint venture with Ford, Otosan, today one of the industry’s largest producers and exporters, was founded in 1959. Other companies such as TOE were also set up, but have not fared as well over time.
These years also saw one of the most talk-
ed about incidents the industry ever saw: The design and development of Devrim, the first Turkish car. Only two were ever built, and the vehicle now forms part of Turkey’s industrial heritage. It followed the military coup of the ’60s, perhaps explaining its name, which means “revolution.” Devrim demonstrated Turkey could design, engineer and produce its own car, but circumstances at the time did not allow this symbol to become an industry.
A plausible explanation for this failure lies in the reality that the Turkish environment, per capita GDP, highway infrastructure and priorities as a nation were not in favor of creating a market for auto products. Yearly car sales were less than a thousand, and the creation of two prototypes fell far short of the prerequisites for creating a commercially viable and technically feasible product that could be industrialized for mass production, even in a limited form. Turks swallowed their pride and set aside their dreams of a domestically designed and produced car.
That was how the situation remained until Dec. 20, 1966, and the launch of the Anadol. This Ford Cortinabased, fiberglass-bodied car was presented to the Turkish market by Otosan. Engineered by Reliant and designed by Ogle Design, the vehicle was produced in the thousands. Turkey had finally created a car capable of being produced on a commercial scale and sold to the public.
By the mid-1960s a multitude of automotive companies had been formed in Turkey, largely involved in the production of commercial vehicles such as tractors, trucks, minibuses and busses. The industry developed around a model of licensed construction -- due to a total lack of infrastructure, knowledge, past experience and existing industry -- which seemed to be the right approach for the time. But with the Anadol, Otosan demonstrated the ability to create new passenger car bodies for existing chasses; where it led, other manufacturers followed.
By the late ’60s it became apparent that the environment was maturing in line with Turkey’s continued growth and that demand was likely to increase for vehicles that could be produced in much larger quantities than would be possible for a fiberglass-bodied vehicle. The time for a steel-bodied car had arrived. The Fiat-Koç joint venture initiated production of the Fiat 124 in 1972, shortly to be followed by the RenaultOyak joint venture’s Renault 12.
The next decade saw the growth of the industry and market, followed by shrinkage in the wake of the oil cri-
sis and domestic economic uncertainty. Industrial labor disputes and political instability interrupted the natural growth of the industry. However, the ’70s also saw the creation of a supplier infrastructure; through various laws requiring minimum local content in motor vehicle production Turkey achieved around 90 percent local content on some products. The models produced by the Fiat and Renault joint ventures continued to evolve, resulting in the Fiat 131 and the Renault 9, respectively.
Faced by competition from the producers of steelbodied cars, and under the pressure of increasing costs of petroleum-based resin inputs, Otosan started to target development of more sophisticated cars. It had Bertone design the FW11 through Reliant, meanwhile commissioning a vehicle from Koç Holding’s central research center; both of these were envisioned as potential replacements for the ailing Anadol. The locally designed vehicle was named Çağdaş (or “contemporary”). It won a national award and was conceptualized as a steel-bodied frame clad with glued GRP panels. During the same years the Koç research and development center designed the first ever Turkish engine since the Devrim’s; a twin Rotary/Wankel engine, prototypes of which were built by Weslake.
However, these developments came against a grim economic backdrop. Tümosan, a state-owned engine production company, was created to produce engines for the national auto industry. Meanwhile in an attempt to restore political and societal stability amid economic regression and national unrest, Turkey went through another military intervention in 1980. This signaled the end for any potentially risky new projects, including production of a locally designed vehicle.
Following restructuring of the economy and redefinition of a growth model more integrated into the world economy, transforming Turkey’s economy from closed and inward-looking to outward-looking and export-oriented, in 1984 the market was liberalized, and imports were allowed with the payment of import duties.
As a result the ’80s witnessed a return to rapid growth. Annual production capacities literally doubled every year, yet the market was still not satisfied. Custom duties were reduced, resulting in ever-growing imports, production was increasing, yet demand remained unsatisfied. This run continued for nearly 10 years until annual production of 200,000 was reached by the major car factories. Once the industry achieved economies of scale, it could focus on introducing new models. Investments switched from capacity to products. Fiat and Renault introduced new models; Toyota and Hyundai commenced production. The Turkish auto industry entered the arena of competition -- and not a moment too late, since it was heading straight for a major new hurdle.
In 1996 Turkey entered the customs union. This marked the completion of the industry’s metamorphosis from an inward-looking industry into an export-oriented production base. Annual exports of 20,000 Tempra-model cars were made to Italy for two years. While production of this model was soon to come to an end, these exports represented the industry’s first successful attempt to produce in quantity and sell to the EU. The product, its quality and its cost had achieved levels of international competitiveness. Then the Fiat 178 was introduced; a contemporary model produced in concert with other production centers globally. This was followed by the Megane; the production of certain models as a single supply source from Turkey. Next was the Doblo and the Connect; both products were for worldwide distribution but produced only in Turkey.
By the early 2000s Turkey had evolved into an automotive production base. Turkey’s automotive exports grew over the next decade to become one of the economy’s most important manufacturing sectors. With that
evolution and the sector’s new importance it became more and more apparent that it was vulnerable to the third-party decisions of joint ventures regarding future investments and use of existing production bases.
The structure of the joint ventures altered. As models became outdated and new models were needed to sustain a competitive position, these were temporarily denied by the licensor partners until they were granted the right to decide on future aspects of the joint ventures. In some cases they obtained majority shareholdings, with local partners becoming financial rather than strategic partners. One of Turkey’s most prominent, important and strategic industries was not being controlled by the country but was subject to foreign decision making. This soon became a major point of concern.
At the same time, the value obtained from manufacturing only represented part of the potential value that could be extracted from the product. Accordingly, the industry started to expand toward the creation end of the value chain. New incentive schemes for research and development were created; the concept of precompetitive cooperation was introduced and incentivized, and the concept of research centers was created and promoted. These helped the Turkish auto industry develop a research engineering infrastructure with test facilities that today boasts some 5,000 engineers. This shared and then took over responsibility for the development of new products or major parts for joint ventures’ new projects. This was not just an original equipment manufacturer original equipment manufacturer (OEM) activity but was conducted hand-in-hand with the supplier base. Local companies, mostly producing commercial vehicles under their own brand, expanded into developing and engineering their products. Turkey thus added a design and development aspect to its productive infrastructure.
Yet although this increased the value added and in some cases made joint ventures the owners of the products, giving them the right to license fees, the question and threat of vulnerability remained. And this is still the case today.
Turkey is the 16th largest economy in the world; it has a population of 75 million, making it the 11th most populous country on the globe. Its per capita GDP is around $10,000. The Turkish Republic celebrates its centenary in 2023, by which time its population is forecast to reach 80 million and per capita GDP if $25,000 is targeted. These developments mean the density of cars per 1,000 people will grow from 150 to 450, a three-fold increase, making a total of roughly 20 million cars and representing an annual expenditure of $50 to $70 million. Turkey’s exports are forecast to hit $500 billion, growing at an annual rate of 4 percent, of which the share of the automotive sector will be around 20 percent.
Turkey is obliged to balance the need for automotive products with its auto exports, and to satisfy part of the demand with local production. In some respects it already does; it is the largest LCV producer in the EU (or at least the runner-up); the same is true of busses. But this is not enough to eradicate vulnerability. These markets are relatively small and while Turkey has already created its brands, their impact is limited.
What is needed now is for the government, industry and the nation to concentrate on creating car brands that will sell in the hundreds of thousands, and which will have a significant impact on reducing imports, increasing exports, and overall adding value to the economy, in addition to existing operations.
If one brand can come out of Turkey, others will too. If half a million vehicles are produced and sold at roughly $20,000 each it will mean two things. Firstly, it will provide an increased added value for the half-million vehicles coming out of the production bases. Secondly, it will give the industry the autonomy to decide what to do when with its products, rather than being at the mercy of a distant and disconnected decision taker.
Once this is achieved, Turkey will have emerged as a mature auto power. To do that there is one last frontier to conquer, and that is the know-how to understand what the consumer wants, and to keep knowing and finding out -- remaining one step ahead of the international competition.
Turkey’s first domestically produced car, Devrim, alongside the first Turkish train, Karakurt on display in Eskişehir.