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

Turkish Review - - CONTENTS - By Jan Nahum

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.

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