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The Automotive Industry i n Turkey 200 8 And Beyond?

The Automotive Industry i n Turkey 200 8 And Beyond?. Prof.Dr.Ercan TEZER / OSD General Secretary Presented in “ TURKINVEST Meeting ". O tomotiv S anayii D erneği / OSD Automotive Manufacturers Association. Founded in 1974 Main Objectives Are:

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The Automotive Industry i n Turkey 200 8 And Beyond?

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  1. The Automotive Industry in Turkey 2008 And Beyond? Prof.Dr.Ercan TEZER / OSD General Secretary Presented in “TURKINVEST Meeting"

  2. Otomotiv Sanayii Derneği / OSDAutomotive Manufacturers Association • Founded in 1974 • Main Objectives Are: To Represent MV Sector In Public Authorities, Local and International Organisations To Gather and Publish Various Information on MVI of Turkey To Organize & Conduct Joint Actions in Different Fields • Is an Active Member of: OICAACEA Liaison Committee ODETTEGAID Group TAAM • OSD is a Partner of • ACEA / EUCAR, EU ERTRAC and EU Motor Vehicle Technical Committee • UN/WP29 • All Relevant Information is Found in OSD Web-Site: www.osd.org.tr/

  3. FREE CIRCULATION OF CAPITAL EU ACCESSION NEGOTIATIONS DECISION EU/TR CUSTOMS UNION 2005 AND BEYOND 1989 1996 * 1995 * 1980 2002 FREE MARKET ECONOMY WTO MEMBERSHIP EU FULL MEMBERSHIP PERSPECTIVE Milestones of Turkish Economy CLOSED ECONOMY Political Uncertainty Resulting In Business Indecision Changing Political and Business HabitsTowards a New Turkey Striving Private Sector

  4. Global (70 Mio Production / 62 Countries) Intensive (10 Companies / % 90 Production) Multiple Effect-Creates (Value Added / Revenue / Jobs) High Competition / Costumer Expectation (Better Safety/Higher Comfort/Rock Bottom Price) Product Differentiation (P.Cars-Status / CV-Investment) Globally Under Heavy Legislation (Emission/Safety/Climate Change) Innovation Oriented Automotive Industry

  5. Global Delocalization “To be Manufacturer in Potential Markets and Enjoy With Low Operational Cost” 1970 Japan USA 1980 1950 1960 Europe Korea 1980 1990 S.America And Others 1970 PRC

  6. MVI in World – 2007 (x 1.000 Units) Ranking in EU (27) Total 6 Buses 1 LCV 2 H.Trucks 6 P.Cars 9 2 Million Units in 2015 1.1 Million Units in 2007

  7. World Total Production – 2005/2020 103.900 66.700 (1.000 Units) Change % 46

  8. Increase in Total Production By Regions 2005/2020 Production Moves From West To East & North To South

  9. Production BRIC Countries 2005 / 2020 1.000 Units Change X 3.29 2005 2020 2020/2005 Russia 1.407 3.347 2,38 Brazil 2.350 3.588 1,53 PRC 5.696 24.204 4,25 India 1.679 5.500 3,28 Total / BRIC 11.132 36.639 3,29 Total / World66.740 103.932 1,56

  10. All Factor Indexes Are Picking up in Q4 2008 Bad News Flow Raw Material and Oil&Energy Prices Credit Crunch Libor + Policy Interest Rate Inflation Unemployment Drop in Global GDP Growth Results Slumps in LV Sales 2008 1.8 m 2009  3.5 m 2010  2.9 m Global Recovery is Expected After 2011 New Trends Under Global Crisis

  11. Market Change In 2008 EU/Turkey P.Cars TR EU+EFTA - 7,9% - 4,6% - 8,3% - 7.3% - 9,6% - 15.7% Commercial Vehicle TR EU+EFTA - 4,0% - 12,4% - 20,3% - 8,6% - 9,0% - 21%

  12. P.Car Market Change % 2008 and 2009

  13. Longest Practice of Global Market Economy Emerging Economy Applying the International Rules of Free Trade Such as Competition Law, Property Rights And Etc. International Capital Movements are Liberalized Up to Date Infrastructure for Commercial and Financial Activities, Telecommunication and Transportation Competitive Industrial Products for the World Market Long Term Relation With EU Within The Association Agreement Dated 1963 Candidate Country in Negotiation Process For EU Membership Turkey Keeps up With Recent Global Economic Trends in the Region

  14. Customs Union Was Realized Between Turkey and EU For The Free Circulation of Industrial Goods New and More Competitive Conditions in the Market Better Incentives for the Industry Towards More Competitivenessto be a Global Player Closer Integration of MVI’s Between Turkey and EU More Share in the MVI Market for EU Customs Union/1996 and MVI • For the Free Movement of Industrial Goods • Tariffs and Non-Tariff Measures Were Wholly Abolished • for Non-EU Countries CCT and CTP Were Implemented • Series of Technical and Commercial Legislation Were Adopted

  15. Basic Steps Taken for the Approximation of the EU Legislation • Competition Rules / Block Exemption Legislation in MVI • Import And Export Regimes and Common Rules • State Aids • Customs Code • Common Commercial Policy • Preferential Agreements • Abolition of Technical Barriers • Protection of Intellectual, Industrial and Commercial Properties • Direct and Indirect Taxation • Protection of Consumers • Environmental Measures • All Relevant MVI Technical Directives

  16. Protected Market Transition Period Development of MVI in Turkey: 1960/2010 1960-1970 License ASSEMBLY 1970-1980 Localization DEVELOPMENT OF COMPONENT IND. 1980-1990 Modernization INCREASE IN CAPACITY Up-to-date Model 1990-1995 UP-TO-DATE MODEL EXPORT Entrence of Toyota and Honda FULL INTEGRATION MANUFACTURING BASE 1995-2000 Free Market Global Competition Research & Development, Design & Technology Management, Intellectual & Industrial Property 2000-2012 TARGET FOR 2012 : CENTER of EXCELLENCE

  17. SWOT Analysis / I • Strengths • International Production And Design Technologies With Component Industry • Technological Infrastructure And Quality To Global Standards • Partnership And High Level Of Integration With International Manufacturers • Export Experience • Strategically Close Location To The Emerging Markets • Well Educated, Entrepreneur, Competitive Human Resources • Lower Man Hour Costs Compared To The EU • Weaknesses • Fluctuating Demand • Lack of Long Term Policies • Low Capacity Usage Rate Causing High Production Cost • Imports Are Not Regulated Efficiently And Thus Over-imports • High Energy Costs • Lack Of Effective Coordination Between Vehicle Manufacturers and Component Industry

  18. SWOT Analysis / II • Opportunities • High Co-operation In R&D Efforts With Leading World Technologies • Low Car Density Rates Signal For Potential High Demand In The Future • Exporting Potential To Surrounding Markets • The Only Global Production Center In The Region • Increasing Integration With EU • Close Bilateral Relations With G8, CIS, ECO And Black Sea Economic Co-operation • Threats • New Production Facilities İn Other Emerging Markets • Foreign Direct Investment İs Favoring Other Emerging Markets • High Tax Rates • Fluctuating Local Demand • Unstable Economy • Excess Of Production Capacity In Global Arena

  19. İSTANBUL İzmit Adapazarı Gölcük Bursa Ankara Eskişehir İzmir Aksaray Adana MV Manufacturers in Turkey 85 % of Components Manufacturers

  20. Japanese Interest Was First Shown In Car Industry In 1994 With Toyota And Then Honda Toyota Brought New Concepts And A Remarkable Motivation To The Industry Toyota-Turkey Became One Of The Important Manufacturing Centers Of Toyota In Europe Isuzu, Hino And Mitsubishi Are In Commercial Vehicle Sector Motor Vehicle Manufacturers (2008)

  21. MVI Integration Number of Manufacturers 14 Link With Non-EU 5(% 26 of 2007 production) * JV/FDI 4 * License 1 Link With EU 7(% 72 of 2007 production) * JV/FDI 5 * License 1 Local 2(% 2 of 2007 production) Link With EU Manufacturers • FIAT GROUP JV • FORD JV • MAN FDI • M.BENZ JV • RENAULT JV • ROVER GROUP L • PEUGEOT L Link With Non-EU Manufacturers • ISUZU JV • TOYOTA FDI • MITSUBISHI L • HONDA FDI • HYUNDAI JV

  22. Automotive Component Industry In Turkey:“An Advanced Supplier Base” • Around 1.000 Component Suppliers: 350 Of Them Are Global Suppliers • International Accreditation: Quality – ISO 16949, Environment - ISO 14001 • Well Trained Work Force: Around 250.000 • Cost Advantage: High Productivity and Relatively Less Labor Wage • Significant Experience In Their Field • Able To Meet Global Standards • Able To Compete In Global Markets • Experience In Export Activities

  23. History of the Production(x1.000) Total Production: 3,000 in 1963 1,100,000in 2007 High Fluctuations In the Past Have Had A Particularly Negative Effect On The Development And Competitiveness Of The Industry

  24. Changes in Last 6 Years(x1.000) Exports Production X 3.17 X 3.17 Total Market Exports / Million $ X 3.65 X 4.72

  25. % Rate of Exports in Production Total Production % 75 P. Cars % 80 Exports Share in Total Production is Over 75 % (X 1000)

  26. The Automotive Market is An Unsaturated One SMMT / Vehicle/1.000 Inhabitants in 2006 Approximately 15 Million Vehicles Are To Be Sold In Turkey To Reach To The Level Of Bulgaria In 10 Years (Whose GDP Per Capita Are Rather Similar)

  27. Automotive Culture 50 years of production tradition High Sense of Quality TQM, Lean Production, 6 Sigma Labor Peace unionized work force / collective bargaining since 1963 Qualified, Well-Trained, Motivated Labor Force at Competitive Cost Flexible Working Hours 7.5 hours / shift - 3 shifts / day - 6 days / week; Rate of Absenteeism < 1.5 % Entrepreneurship $ 10 billion worth of Investment Partnership With World-Leading Manufacturers Experienced Local Component Industry / Supplier Base Unsaturated Domestic Market With High Potential of Demand More Incentives on R & D and New Investments Developed Infrastructure & Services in the Region Logistics, Energy, Transport, Banking, Communication Manufacturing Facilities With State-of-the-Art Technology The Assets & Potential of MVI of Turkey

  28. What Will Lead to New Investment • A New Investor Will Search For The Opportunity To Develop New Products At Moderately Lower Cost. • All Automotive Products Become Obsolete In The Long Term, Therefore Current Models Need To Be Renewed Within 2-3 Years. • So The Continuity Of The Business Would Heavily Depend On The Ability To Design And Launch New Products. • In Order To Realize New Projects At Competitive Cost These Are Needed: • R&D Capabilities (Vehicle And Component Manufacturers) • More Effective R&D Incentives • Advantages In Investment Cost • Project-Based Investment Incentives For Both Vehicle And Component Industry In Major Exports Projects

  29. Benchmarking With Other Countries / II 1. CHINA -Tax Vacation Of Two Years -Tax Discount At 50% For Subsequent Three Years -Production Activities In Certain Areas Or In Tech Development Enjoy Low Tax Ratio ( 10%, 15%, 24%) 2. KOREA -Tax Vacation Of Seven Years For High Tech Investments -Tax Discount At 50% For Subsequent Three Years -Royalties Paid For High Tech Areas Are Not Subject To Withholding Tax For 5 Years

  30. Benchmarking with other countries / I 1. IRELAND - Active income is subject to 12,5 % corp.tax as for Passive income 25% 2. HUNGARY -10 years tax vacation as of the year of the investments completion for the investments more 33.3 Mil. USD 3. CZECH REPUBLIC -Tax vacation of from 5 to 10 years 4. SLOVAKIA -5 years tax vacation -50% tax discount for the investors increasing their paid in capital at 4.5 million EUR at the end of tax vacation period 5. CROTIA

  31. Incentives For Export Oriented Investments That Are Aimed At The Development And Production Of Competitive Products Were Abolished The Tax Incentive That Was Previously 26,4 % Decreased To 13,2 % According To Act 4842, New Economic Investments That Will Deliver Internationally Competitive Vehicle Models With High Added Value Requiring The Deployment Of High Manufacturing Technology,Fall Within The Scope Of “General Incentive Regulations”

  32. Recent Incentives Proposal On Investment • Decrease Corporate Tax Rate was Reduced From 30 % To 20 % And Cancelled Investments Allowance 40 % • Together With Tax Council, OSD Proposes The Following Scheme:

  33. A New Incentive Scheme is Now Covering R&D Activities in Companies to be Effective This Year Such As: 100 % Deduction of R&D Expenses From Corporate Tax Came into Operation in 2008 Tax and Social Security Funds Payment Exemption for Those Working in R&D Activities Government Assigned Yearly $ 300 Million to TUBİTAK in Order to Support R&D Activities and Targeted to Increase R&D Expenses up to 2 % of GNDP in 5 Years Automotive Technology and R&D Center – OTAM(*) was Established in Istanbul Technical University-ITU with $ 12 Million to Start off TUBİTAK-MAM is Providing Large Scale of Basic Services for R&D Recent Developments on R&D Activities (*)OSD, ITU (Istanbul Technical University) , TAYSAD (Assoc. of Component Manufacturers), UIB (Union of Vehicle & Component Exporters) are the Partners of OTAM

  34. Offices (1445 m2) IC Engines Laboratory (1640 m2) Vehicle Laboratory (1640 m2) Automotive Technology / R&D Center OTAM • OTAM was Established by(OSD), The Scientific and Technical Research Council of Turkey (TÜBİTAK) and Istanbul Technical University (İTÜ) in 2004 • OTAM is Formed as an R&D Company in 2007 (OSD, TAYSAD, İTÜ, UİB) to carry out of R&D and Type Approval Tests in Cooperation with ITU • OTAM is Mainly Specialized in the Areas of Engine, Emission, Vibration, Noise and Chassis / Body Analysis

  35. In The Short Term Production: Over 1,0 Million Exports: Over 0,8 Million Already Realized In The Medium Term Production: 2,0 Million Exports: 1,5 Million Can be Achieved Direct Employment Of 600,000 Total Exports Of $ 50 Billion By Means of Additional Investment At Least $ 5 Billion Prospects of the Turkish Automotive Industry

  36. Optimizing Capacity Utilization Full Use of Domestic Market Potential More Activities in Exports Markets Increasing Competitiveness Cost Reduction By Means Of Productivity Improvements Encouraging More Innovation in The Industry Better Management in Supply Chain Strengthening Assembler/Supplier Strategic Partnerships Establishing Long-term Partnerships Effective Cooperation On Supply Chain The Strategy and Action Plan

  37. Ford OTOSAN, Among European Ford Factories, Has Been Selected As The Best Motor Vehicle Manufacturer In The Last Five Years. Toyota Factory In Adapazarı Was Selected The Best Worldwide Toyota Manufacturing Plant In 2006. Current International Trophies Ford Connect “VAN of the year” in 2003 Production: İzmit FIAT LINEA “Autobest 2008” Production: Bursa FIAT Doblo “VAN of the year” in 2006 Production: Bursa TEMSA DIAMOND “Busbuilder of the year 2007” Production: Adana Renault Clio III “Car of the year” in 2006 Production: Bursa FIAT FIORINO “Van of the year” in 2009 Production: Bursa Ford Transit “ VAN of the year” in 2007 Production: Kocaeli

  38. TURKEY IS A CENTER OF GLOBAL AUTOMOTIVE PRODUCTION And IS TO BE A “CENTER of EXCELLENCE” TEMSA IS A BUS PRODUCER

  39. Thank You For Your Interest INTERNET http://www.osd.org.tr e-MAIL osd@osd.org.tr

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