Final kpmg turkey-2014-automotive-executives-survey

KPMG Turkey

2014 Automotive Executives Survey

Sustainable Growth in the Turkish

Automotive Sector

2018 Projections

kpmg.com.tr

About the SurveyThe survey aims to determine sector-related projections of Turkey’s automotive sector executives. The survey has been conducted by ERA Research & Consultancy in cooperation with the Association of Automotive Distributors (ODD), Automotive Manufacturers Association (OSD), Association of Automotive Parts and Components Manufacturers (TAYSAD), Association of Authorized Dealers (OYDER) and members of these associations under the supervision of KPMG Turkey.

In addition to general questions directed to the members of the four associations, special questions were addressed to the members of each association under the scope of the work. Shared questions included in the survey, the first edition of which was carried out in 2012, are reported on a comparative basis. Utilizing the online survey method, the questionnaire was prepared under the leadership of KPMG Turkey, and was evaluated with the support of all associations. Nearly 200 senior executives of leading companies of the Turkish automotive sector who are also members of these four associations participated in the survey conducted between November 14 - December 16, 2013. While results were reported in total for all association members, samples of each association were weighted on a par.

Preface

Ergün KışKPMG Turkey, Head of Automotive Partner, Audit

The “KPMG Turkey 2014 Automotive Executive Survey”, now in its second edition, evaluates developments and trends for the years 2013 to 2014, while reflecting the expectations and views of the Turkish automotive executives for the next five years to 2018. Their views of the Turkish automotive market and the industry are positive, despite a decrease in growth expected for 2014.

On the Market side, as in the previous year, tax regulations on automotive sales remain to be the number one issue of priority over the next five years, gaining further importance.

Growth of national income per capita, as well as readjustment of sales taxes, is important to ensure growth in the domestic market. It appears that a sustainable growth for the Turkish automotive sector cannot be achieved by focusing mainly on exports at the expense of the domestic market.

Frequent increases in the rate of Special Consumption Tax reduce the demand for new vehicles on the market. This deters investment by local and foreign investors, consumer spend is directed towards vehicles with relatively lower special consumption tax rates and second-hand vehicles, and ultimately increases the uncertainty over longer term investment decisions.

In order to compensate for the negative impacts of high taxes on sales; incentives such as scrap vehicle program rise to top on the sector’s agenda. The average age of Turkey’s population is 29, and the average age of vehicles driven is 16. In this context, automotive executives believe that scrap vehicles should be withdrawn from the market in order to ensure growth in the sector. A scrap vehicle program would be an important factor of sustainable growth when it is adopted as a long term government policy, rather than a periodical measure.

The prominent issue for Authorized Dealers is the need for consolidation and restructuring, in the face of market conditions and global developments. The consolidation process will create larger local dealerships; provide them with increased negotiating power against suppliers, as well as qualified personnel and alternative sales channels, while decreasing their operational and personnel costs.

From the Industry perspective; it is a fact that 78% of passenger cars sold in Turkey are imported vehicles. Turkey’s principal issue, however, is the difficulty to satisfy demand with domestically produced vehicles due to a lack of model variety. While this causes consumers to turn to imported models, high tax rates create a burden for the sector and an impediment for new investments. If the sector is able to increase the variety of domestically produced vehicles, Turkey may be able to achieve a more balanced growth between imported and domestically produced vehicles.

Approximately 80% of Turkey’s automotive production is exported to the highly saturated European market. Expanding to new markets is imperative in order to achieve sustainable growth. The results of the survey indicate that Free Trade Agreements to be signed with non-EU markets are of significant importance.

In the new world order and today’s business cycle, as production shifts from West to East, Turkey must clearly define its strategy and the position it wants to take within this competitive environment. Many developed countries already have plans in place for the period to 2035. Our survey highlights that current plans for the next five years to 2018, already fall short of Turkey’s long term plans for 2023. We therefore strongly believe, that the “Turkish Automotive Sector Strategy Document: 2011 to 2014” needs to be revisited and renewed.

We can see that this year, the supplier industry has evaluated Research and Development as an integrated part of Institutionalisation and Strategic Planning. It appears that there is a consensus that all three have no chance of success when managed independently from one another. The automotive industry is a particularly capital-intense sector, which requires clear focus on medium to long term strategy.

For global suppliers, on the other hand, innovation is key. To achieve this, Turkey’s strategy should focus on innovation and increasing added value to become a more independent automotive base.

Although the dynamics of the industry are different from that of the market, both must be evaluated as a whole in order to achieve sustainable growth in the Turkish automotive sector.

We would like to thank the four important associations of the sector, namely ODD, OSD, OYDER and TAYSAD for their support contributing to the preparation of the KPMG Turkey 2014 Automotive Executives Survey. We hope you will enjoy reading Sustainable Growth in the Turkish Automotive Sector.

Sincerely,

One of the main strategic goals of the Turkish automotive sector is to achieve healthy long term growth. With this in mind, this year’s survey, “Sustainable Growth in the Turkish Automotive Sector”, explores the market opportunities.

Table of Contents

Executive Summary

I. General information

II. Market

III. Industry

IV. Appendix Facts and Figures

6

8

21

37

55

6 Sustainable Growth in the Turkish Automotive Sector

Executive Summary

• Top priority issue for the next five years is, by far, readjustment of taxes on automotive sales.

• 92% of executives in the Turkish automotive sector foresee a market growth. However, they anticipate that the growth rate will decline.

• The growth rate of national income per capita and tax burdens have become the most significant factors in the growth of the automotive sector.

• 67% of participants expect the automotive manufacturers of BRIC* countries to penetrate the European market; more than 50% of these expect these investments to be realized within 4 years.

• Eastern European countries increased their competitive power in the previous year. However, there is anticipation that both Turkey and North Africa will attract investments.

• The Turkish automotive sector expects an investment from a new manufacturer within the next 5 years.

* BRIC: Brazil, Russia, India, China.

GENERAL INFORMATION

Sustainable Growth in the Turkish Automotive Sector 7

ODD

• Once again, tax burdens are considered the most important impact factor for the sector.

• 28% of participants believe that success in the market depends on pricing and sales incentives. When financial services are also taken into account, overall percentage reaches 47%.

• It is anticipated that trends in profit centers will remain the same or profitability will decrease.

• Personalized sales and services are clearly the most important factor in improving customer satisfaction.

• Fuel efficiency and vehicle design are the most important product features in making purchase decisions this year.

• Auto leasing sector is expected to grow. 61% of participants anticipate that this growth will exceed the growth of the automotive market by at least 10%.

OSD

• 93% of manufacturers are certain that manufacturing figures will increase in the next 5 years. A majority expects the manufacturing figures to exceed 1.3 million.

• There is a certainty that the capacity will increase. The percentage of those who anticipate a capacity increase has risen significantly from 73% to 93%.

• The market attractiveness of the BRICs and tax unpredictabilities are the primary obstacles for new investments in Turkey.

• Participants see Free Trade Agreements to be signed with non-EU countries as the most important aspect of ensuring sustainable exports.

• R&D and product development are the most significant points for the main and the supplier industries to jointly work on.

• The most important issue to increase the involvement of the supplier industry in new vehicle projects is to establish an R&D and testing infrastructure.

OYDER

• According to the Authorized Dealers, the Distributors will have to expand the scope of their “branded motor insurance” applications.

• 88% of the Authorized Dealers expect a continuing increase in passenger car sales. The increase is expected to reach up to 23% within 5 years.

• It is anticipated that people under the age of 30 will lose their appetite to purchase vehicles, and will be more inclined to rent.

• The Authorized Dealers expect that equivalent spare parts approved by international institutions or by the Distributors will be used.

• The Authorized Dealers seek further cooperation with insurance companies.

• The Authorized Dealers must make decisions in several important fields: Human Resources, costs, customer relationships, financial resources and sales channels.

INDUSTRY

MARKET

TAYSAD

• R&D is, once again, the primary area on which the supplier industry should focus. The rapid increase of strategic planning is remarkable.

• Engine and gearbox investments are still considered as the most important strategic investment. The importance of hybrid or electric vehicle technologies is also on the rise.

• The main and supplier industries agree: Incentive and investment environment must be improved and the supplier industry must be more involved in global projects.

• While Russia maintains its position in the first place, the North America’s leap to 2nd place, leaving China behind, is interesting.

• The supplier industry plans investments to countries of interest. The only exception is China, where the amount of investment plans fall far behind the interest taken in China.

• Great importance is given to increasing cooperation with the main industry in global projects and R&D.


Top priority issue for the next five years is, by far, readjustment of taxes on automotive sales.

Which issues/developments will be of priority during the course of the next five years in the Turkish automotive market?The readjustment of taxes on automotive sales, which was determined as the most significant issue last year as well, remains on the top of the list. The importance attributed to this issue has further increased compared to last year.

In order to compensate for the negative impacts of high taxes on sales, incentives such as scrap vehicle program rise to the top of the sector’s agenda. While this issue was ranked sixth last year, it moved up to the second spot as the already aged vehicle park got one year older.

The crisis in Europe, which was a serious concern for the automotive sector last year, dropped down to the fifth spot. The sector thinks that the crisis in Europe is now under control.

The significant loss of importance given to excessive price competition compared to the previous year indicates that the prices are already sufficiently low, and that the players’ movement area has narrowed down considerably.

Issues of priority for the automotive sector during the course of the next five years

General informationIssues of Priority

Readjustment of taxes on automotive sales

Scrap vehicle incentive and similar sales incentives

Foreign Investment policies

Increasing market share of environment friendly (hybrid/electric) vehicles, carbon dioxide emission legislation practices

Impacts of the crisis in Europe

Excessive price competition

Impacts of investment incentive program on the automotive sector

Reflections of merger and consolidation process of global brands on the Turkish automotive industry

Product features

Developing a local car brand for global markets

Increasing market share of Chinese brands

2014 2013

26%21%

13%7%

10%10%

10%10%

8%16%

8%15%

7%6%

6%4%

4%2%

4%6%

3%2%


Mustafa Bayraktar ODD, Chairman

In the previous KPMG Turkey Automotive Executives Survey, I mentioned the unfavorable influence of high tax rates levied on sales prices in Turkey. I would like to start my evaluations for this year, with the Decision of the Council of Ministers dated January 1, 2014, which increased the rate of the Special Consumption Tax (SCT) from 40% to 45% for passenger cars with engines of 1600cc and below; from 80% to 90% for passenger cars with engines of 1600cc - 2000cc; and from 130% to 145% for passenger cars with engines of 2000cc and above.

At a time when the fact that the high level of taxes levied on passenger car sales in Turkey is considered a generally accepted issue by all stakeholders including the public sector; and when the automotive sector is going through a difficult period due to rapid increase in foreign currencies and the limitations imposed by the Banking Regulation and Supervision Agency

over passenger car loans; this increase in the SCT rates has forced the sector to pursue its activities under harsher conditions.

Looking from a global point of view, I can say that we are going through an extremely sensitive and critical time period. On the other hand, the automotive sector is in a significant transition process. There is a geographical transition, in other words a rapid shift from west to east in production.

Ensuring that Turkey benefits from this transition in the most advantageous way possible is among the primary goals of ODD, which focuses its efforts on bringing the automotive sector to a modern, stronger environment-friendly structure. In this context, we hope that the “Automotive Sector in the World and in Turkey 2013” titled report that we prepared with TEPAV will shed light on the policies to be developed in the future for the automotive sector. According to this report,

Turkey, with a population of an average age of 29 years, drives scrap vehicles with an average age of 16 and it is absolutely necessary that these scrap vehicles are withdrawn from traffic in order to ensure the development of the automotive sector.

The foreign trade balance maintained by the sector over the years is also worth mentioning. The automotive sector has been generating a foreign trade surplus for the last 7 years since 2006 (with the exception of 2011). The foreign trade surplus generated by motor vehicles alone has reached USD 12 billion 446 million over 7 years.

Supporting the automotive sector will undoubtedly contribute positively to decreasing the foreign trade deficit, which is considered as a general problem for our economy. In other words, the automotive sector is also the remedy of unemployment and foreign trade deficit problems.

Distribution by association membersWhen the results are evaluated on the association basis, it seems that all associations except TAYSAD consider “readjustment of taxes on automotive sales” as an issue of utmost priority for the next five years (ODD 31%, OYDER 38%, OSD 21%). However, on the industry side, 22% of TAYSAD members consider “foreign investment policies” as the issue with the highest priority. “The readjustment of taxes on automotive sales” (13%) and “Impacts of the crisis in Europe” (12%) rank in the second and third places respectively.

Insight

18%

31%6%

5%

3%2% 10%

5%3%

6%

8%ODD

Yabancı yatırım politikaları

Çevre dostu (hibrit/elektrikli) araçların sektör payının artması, karbondioksit emisyon uygulamaları

Otomotiv satış vergilerinin yeniden düzenlenmesi

Avrupa krizinin etkileri

Yatırım Teşvik programının otomotiv sektörüne etkileri

Aşırı fiyat rekabeti

Küresel markalardaki birleşme ve konsolidasyon sürecinin Türkiye otomotiv sektörüne yansımaları

Küresel pazarlar için yerli otomobil markasının geliştirilmesi

Çin markalarının sektör payının artması

Hurda araç programı ve benzer satış destekleri

Ürün özellikleri

22%

13%

12%11%

6%

7%

6%

5%7%

8%

2%

TAYSAD

11%

9%

21%

9%8%

6%

14%7%

9%

2%

5%OSD

38%

4%

14%

4%2%

3% 4%

1%

5%

23%

2%

OYDER

Foreign investment policies

Increased market share of environment-friendly (hybrid/electric) vehicles, carbondioxide emission legislation practices

Readjustment of taxes on automotive sales

Impacts of the crisis in Europe

Impacts of investment incentive program on the automotive sector

Excessive price competition

Reflections of merger and consolidation process of global brands on the Turkish automotive industry

Developing a local passenger car brand for global markets

Increased market share of Chinese brands

Scrap vehicle program and similar sales incentives

Product features

ODD - top 3:

31% Readjustment of taxes on automotive sales

18% Increased market share of environment-friendly (hybrid/electric) vehicles, carbondioxide emission legislation practices10% Scrap vehicle program and similar sales incentives

OYDER - top 3:


23% Scrap vehicle program and similar sales incentives14% Excessive price competition

OSD - top 3:


14% Scrap vehicle program and similar sales incentives

11% Foreign investment policies

TAYSAD - top 3:

22% Foreign investment policies


12% Impacts of the crisis in Europe


92% of executives in the Turkish automotive sector foresee a market growth. However, they anticipate that the growth rate will decline.

The volume of Turkey’s automotive market reached a total of 817,620 vehicles in 2012; with 556,280 passenger cars, 221,481 light commercial vehicles and 39,859 heavy commercial vehicles. This figure reached a total of 893,124 vehicles in 2013; with 664,655 passenger cars, 188,723 light commercial vehicles and 39,746 heavy commercial vehicles.

What are your expectations for the next five years regarding the Turkish automotive market?Turkey’s automotive sector has undergone declines of up to 24% and increases of up to 54% throughout the last decade. Although growth rates are encouraging, the declines in growth rate can be equally challenging. For sustainable growth, it is necessary to maintain variations in growth rate within smaller ranges, and only in the direction of growth.

The number of motor vehicles per 1000 people in Turkey increased to 164 in 2013 from a level of 95 motor vehicles per 1000 people in 2003, in line with the growth seen over the last 10 years.

We inquired whether the executives in the sector foresee a growth in this market, and if yes, how much growth they expect.

According to the findings of the survey, executives of the Turkish automotive sector consider the developments in the Turkish automotive market as favorable. 92% of executives anticipate a growth in the market. However, the percentage of executives who anticipate the sales figure to exceed 1.2 million over the next 5 years has decreased to 22% from 36%. The anticipation is that the growth will slow down.

Growth projections for the five-year period

General informationEstimated Size of the Automotive Market

2014

2013

1% 2%

31% 36

%

47%

27%

13%

24%

5% 7%

4%5%

0.4%

less than 700 thousand

between 1.200-1.350

thousand

between 1.350-1.500

thousand

more than 1.500

thousand

No ideabetween 700-1.100 thousand

between 1.100-1.200

thousand


Distribution by association membersWhen the responses are evaluated on the association basis, it is seen that a consensus has been reached on the anticipation that the sales figures will increase over the next five years. On the Market side, while 38% of ODD members who responded that the sales figure is “Expected to increase: between 820-1,000 thousand” do not anticipate the market to surpass 1 million; 28% of OYDER members who responded that the sales figure is “Expected to increase: between 1,100-1,200 thousand” have indicated that they anticipate the market to surpass 1 million. On the Industry side, members of both associations take a brighter view of the market, indicating that they anticipate the market to grow at fairly close percentages to reach “between 1,000-1,100 thousand” (OSD 27%, TAYSAD 28%).

23%6%

9%

15%

14%

28%

2% 3%

Azalacak: 600 - 700 bin arasıAzalacak: 700 - 820 bin arası

Artacak: 820 - 1.000 bin arası Artacak: 1.000 - 1.100 bin arası

Artacak: 1.200 - 1.350 bin arası

Artacak: 1.350 - 1.500 bin arası Artacak: 1.500 bin’den fazla


%23%6

%9

%15

%14

%28

%2 %3






TAYSAD

25%

28%

17%8%

3%

20%

13%

20%27%

13%7%

20%

0%3%

0%

10%

28%

16%

4%

9%

11%

2%

11%

3%

18%

27%

38%

9%9%

OSD

OYDERODD

%23%6

%9

%15

%14

%28

%2 %3






TAYSAD - top 3:

28%

23%

15%

OSD - top 3:

27%

20%

20%

ODD - top 3:

38%

27%

18%

OYDER - top 3:

28%

25%

20%

Expected to increase: between 820 - 1,000 thousand

Expected to increase: between 1,000 - 1,100 thousand











Expected to decrease: between 600 - 700 thousand

Expected to decrease: between 700 - 820 thousand






Expected to increase: over 1,500 thousand


The growth rate of national income per capita and tax burdens have become the most significant factors in the growth of the automotive sector.

Which factors will affect the growth of the Turkish automotive sector over the next five years? Growth rate of national income per capita was specified as the most effective growth factor for the first time this year, slightly ahead of tax burdens, which ranked in the first place last year.

Although tax issues are anticipated to be the most important item on the agenda for the next 5 years, the alleviation of its effects on the sector’s growth indicate that the players do not anticipate a decrease in tax rates over the next 5 years.

Consumer loan costs also gained significant importance, ranking this year in the third place. This mainly resulted from the limitations imposed on installments in particular.

It can be seen that the subject of local passenger car brand is now excluded from the agenda.

Factors affecting the growth of the sector over the five-year period

General informationFactors affecting the growth of the automotive market

2014 2013

Growth rate of national income per capita

Decrease of tax burdens (SCT etc.) on the sector

Consumer Loan Costs

Acceleration to be gained upon the disappearence of the debt crisis in Europe

Foreign investments and investment incentives

Development of the supplier industry

Manufacturing and launching a local passenger car brand

Manufacturing and launching environment-friendly passenger cars

Know-how generation and sales

23%

21%

22%

31%

20%

14%

13%

17%

11%

9%

5%

3%

9%

2%

3%

1%


Distribution by association membersWhen the results are evaluated on the association basis, we see a difference of opinion regarding the most significant factor to influence the sector’s growth. On the Market side; while 32% of ODD members regard “Consumer loan costs” as the most significant factor; 33% of OYDER members responded to indicate that they consider “Decrease of tax burdens on the sector” to be of the highest priority. On the Industry side; 21% of OSD members pointed to “Consumer loan costs” as the most significant factor to affect growth as well, 25% of TAYSAD members responded to indicate that they consider “Decrease of tax burdens (SCT, VAT, etc.) on the sector” to be the most significant factor in this regard.

33%

3%

5%1%

11%

30%

17%

7%

21%

20%

15%

18%

Avrupa borç krizinin ortadan kalkmasının kazandıracağı ivme

Kişi başına düşen milli gelirin artış hızı

Sektör üzerindeki vergi yüklerinin (ÖTV, KDV vb.) azaltılması

Yerli marka otomobilin üretimi ve pazara sunumu

Çevreci otomobillerin üretimi ve pazara sunumu

Yan sanayinin gelişmesi

Yabancı yatırımlar ve yatırım teşvikleri

Tüketici kredi maliyetleri

Geleceğe güven

12%

6%

14%

14%

25%

17%

9%

32%

27%

13%

10%7%7%

2%

1%1%

18%

3%

33%

3%

5%1%

11%

30%

17%

7%

21%

20%

15%

18%









Geleceğe güven

12%

6%

14%

14%

25%

17%

9%

32%

27%

13%

10%7%7%

2%

1%1%

18%

3%

TAYSADOSD

H. Şükrü IlısalOYDER, Chairman

With 83 million sales throughout the world, 2013 was a year of achievement of goals. The anticipation for 2014 is to realize 87 million sales; likewise, in addition to the high volume of sales in the USA this year, the constant growth in the EU since October further raises our hopes.

As for Turkey, 2013 was satisfactory in terms of the number of sales realized; however, every time we make such a statement, the sector faces an increase in tax rates. When the results of KPMG’s valuable surveys for this year and last year are put side by side and compared; one can see that the results are almost identical. This indeed, indicates that the priorities of the sector remain the same.

When we look at the answers to questions about sales estimations, we can see

that the vast majority of participants anticipate a passenger car sales volume of around 650-800 thousand within the five-year period. This result is in fact, an anticipation of good faith. The structure of today’s organization is geared to handle a sales volume of around 1 million vehicles; whereby, a sales volume of less than 700 thousand poses a severe problem for the sales organization. This is why I used the term ‘anticipation of good will’.

On the other side, I place great priority on the emphasis that my colleagues made on the subject of human resources; and the evaluation that they made to indicate the increasing need for competent staff members, as well as the importance of digital marketing for the future. The outcomes of purchasing trends is yet

another point which reflects the future and which we need to carefully study. Our sector is on its way to becoming a stable sector; the average sales volume of the last 4 years is 804 thousand. We, as the sector players, are working hard to achieve these goals, and we are happy to generally see our government on our side. However, we believe that we deserve the implementation of a healthy tax system with a broader base, and subsequently, alleviation of the tax burden on us, in the near future. I would like to underline once again that the automotive sector is the most crucial driver of our country and we know that the sector is primarily fuelled by the domestic market. Therefore we support any type of measures, changes and new practices to maintain sustainability and stability of the domestic market demand.

Insight

33%

3%

5%1%

11%

30%

17%

7%

21%

20%

15%

18%









Geleceğe güven

12%

6%

14%

14%

25%

17%

9%

32%

27%

13%

10%7%7%

2%

1%1%

18%

3%

ODD

33%

3%

5%1%

11%

30%

17%

7%

21%

20%

15%

18%









Geleceğe güven

12%

6%

14%

14%

25%

17%

9%

32%

27%

13%

10%7%7%

2%

1%1%

18%

3%

OYDER

Avrupa borç krizinin ortadan kalkmasının kazandıracağı ivme Kişi başına düşen milli gelirin artış hızı







Geleceğe güven

TAYSAD - top 3:OSD - top 3:

ODD - top 3:32% Consumer loan costs 27% Growth rate of national income per capita13% Acceleration to be gained upon the disappearance of the debt crisis in Europe

OYDER - top 3:33% Decrease of tax burdens (SCT, VAT etc.) on the sector30% Growth rate of national income per capita18% Consumer loan costs

21% Consumer loan costs20% Decrease of tax burdens (SCT, VAT etc.) on the sector18% Growth rate of national income per capita

25% Decrease of tax burdens (SCT, VAT etc.) on the sector17% Foreign investments and investment incentives14% Growth rate of national income per capita14% Acceleration to be gained upon the disappearance of the debt crisis in Europe

Acceleration to be gained upon the disappear-ance of the debt crisis in Europe


Decrease of tax burdens (SCT, VAT etc.) on the sector

Manufacturing and launching a local pas-senger cars brand

Manufacturing and launching environment-friendly passen-ger cars

Development of the supplier industry

Foreign investments and investment incentives

Consumer loan costs

Confidence in the future


67% of participants expect the automotive manufacturers of BRIC countries to penetrate the European market; more than 50% of these expect the investments to be realized within 4 years.

Do you expect the automotive manufacturers of BRIC countries (particularly China) to penetrate the European market?The percentage of the Turkish automotive sector executives who anticipate the automotive manufacturers of BRIC countries to invest in Europe has increased from its already high level of 61% to 67%.

It is interesting to see that this expectation has further increased despite the fact that Chinese investments to be made into Turkey have not realized yet. Furthermore, the fact that these investments are primarily anticipated to be realized within a short period of time as 4 years underlines China’s potential in particular.

Expectations as to the penetration of BRIC countries’ automotive manufacturers to the European market

General informationPenetration of BRIC Countries into the European Market

In how many years do you expect automotive manufacturers of BRIC countries to penetrate the European market?

1-2 years

3-4 years

5-6 years

7-8 years

10 years

They already did

Other

No idea

7%8%

45%37%

37%48%

8%7%

1%

3%

1%

1%1%

2014 2013

2014

67%

%1

32%

Yes, I expect it

No idea

No, I do not expect it

2013

61%Yes, I expect it

1%

38%

No idea

No, I do not expect it


Distribution by association membersWhen the results are examined, it is seen that the percentage of association members who expect automotive manufacturers of BRIC countries to penetrate the European market has generally increased compared to the previous year. On the Market side; while 48% of ODD members expect a penetration within “3-4 years”, 50% of OYDER members anticipate this duration to be “5-6 years”. On the industry side; while 50% of OSD members respond to indicate “3-4 years” as their answer to the question, TAYSAD members point to both “3-4 years” and “5-6” years with an equal percentage of 46%.

48%

26%

21%

ODD

OSD

TAYSAD

OYDER

25%46%

46%

8%

50%

36%

5%5%

2%2%5%

1-2 yıl 3-4 yıl 5-6 yıl 7-8 yıl Fikrim yok 10 yıl

50%

8%8%8%

Şu anda girdiler

48%

26%

21%

ODD

OSD

TAYSAD

OYDER

25%46%

46%

8%

50%

36%

5%5%

2%2%5%


50%

8%8%8%

Şu anda girdiler

TAYSAD

48%

26%

21%

ODD

OSD

TAYSAD

OYDER

25%46%

46%

8%

50%

36%

5%5%

2%2%5%


50%

8%8%8%

Şu anda girdiler

ODD

Distribution of those who answered “yes”

48%

26%

21%

ODD

OSD

TAYSAD

OYDER

25%46%

46%

8%

50%

36%

5%5%

2%2%5%


50%

8%8%8%

Şu anda girdiler

OYDER

OSD

Kudret ÖnenOSD, Chairman

Turkey’s domestic market, limited by high tax rates, is far from being attractive for new capacity investments. On the other hand, investments of the global industry, which suffers from the problem of overcapacity, are shifting towards BRIC countries, which have a higher potential for demand. Within this framework, a balanced tax system to expand the demand of the domestic market, along with a Government Subsidy Legislation that supports investments of the automotive industry, are of strategic importance.

Development of our industry and the increase of added value and the competitive power depend on our ability to domestically supply components and parts which are defined as intermediate goods. Turkey has a strong and competitive supplier industry which grows with important investments. Companies that manufacture motor vehicles naturally prefer domestic

supply, provided that conditions including factors such as cost, quality and shipping reliability are favorable.

The new investment incentive system still supports motor, drive line and electric-electronic system investments, the domestic supply for which are currently limited, under special provisions. On the other hand, OSD cooperates with TAYSAD and the Ministry of Economy on the Input Supply Strategy (GITES) project.

By carrying out testing and R&D works, which have been carried out abroad, domestically, following the completion of infrastructural works in the field of R&D in the near future, our aim is to create savings in terms of resources and time. Finalization of the works on establishment of a testing track within the framework of “the Objective of Improving the R&D Structure”, which has been specified in the Strategy

Document for the Automotive Sector as the goal with the highest priority, is of utmost importance for our industry.

With the support of the newly organized incentive system, in addition to innovation in terms of models and technology in the existing facilities, large scale investment projects have been initiated in 2013 to create additional capacity. We understand that these works will continue into the year 2014. These investments will not only contribute significantly to the increase of the competitive power of our industry, but will also ensure noteworthy growth in export markets in particular.

Due to unfavorable global conditions and particularly capacity problems experienced in EU countries, the capability to create a new brand is considered to be limited at this time. However, investment activities will continue in our existing institutions.

Insight

1-2 years 3-4 years 5-6 years 7-8 years No idea 10 years already penetrated

ODD - top 3:

48% 3-4 years

26% 5-6 years

21% 7-8 years

OYDER - top 3:

OSD - top 3:

TAYSAD - top 3:

50% 5-6 years

36% 3-4 years

5% 7-8 years

5% 1-2 years

50% 3-4 years

25% 5-6 years

8% 7-8 years

8% 1-2 years

8% already penetrated

46% 3-4 years

46% 5-6 years

8% 1-2 years


Eastern European countries increased their competitive power in the previous year.However, there is anticipation that both Turkey and North Africa will attract investments.

Which countries do you think automotive manufacturers of BRIC countries (particularly of China) will primarily prefer (as a manufacturing center for the European market) in the event that they penetrate the global market? When the fact that 60% to 80% of vehicles annually manufactured in Turkey are exported is taken into account, one can clearly see that Turkey is indeed, a manufacturing hub. Approximately 80% of Turkish exports are directed to Europe. This indicates that Turkey has become an automotive manufacturing hub for Europe.

The fact that Turkey is capable of becoming a stronger manufacturing hub has been under discussion for a long time, and has also been included among Turkey’s strategic targets. In KPMG’s 2012 Global Automotive Executive Survey, it was revealed that Turkey was expected to be the gateway for BRIC countries.

Hopes should not be too high on the expectation that the investments could shift from Europe to Turkey. However, with her professional, experienced and strong automotive infrastructure, the customs union agreement with the European Union, proximity to Central Europe for transportation purposes and customs advantages provided by the new incentive system; Turkey is an option for Far Eastern countries that plan to penetrate the European market.

Countries preferred by BRIC countries while penetrating the European Market

General informationCountries preferred by BRIC countrieswhile penetrating the European market

7%

North America

Northern European Countries

Eastern Europe

North Africa

Middle East

TurkicRepublics

Turkey

2014

2014

2014

2014

2014

2014

2013

2013

2013

2013

2013

7%

0.3%

18%26%

0.1%

16%23%

53%46%

China2014 2013

0.4%

0.3%

0.1%

0.5%

0.2%

2014 2013


27%

11%

7%

1% 2%

53%

52%

27%

14%

4%

2%

19% 64%

6%

1% 1%

26%

9%

18%

1%

44%

2%

Doğu Avrupa / Yeni AB Ülkeleri

Türkiye

Kuzey Afrika Ülkeleri

Kuzey Amerika

Batı Avrupa

Ortadoğu Türki Cumhuriyetler

AB Ülkeleri Cevap Yok

ÇinUzakdoğu

10%

Distribution by association membersAccording to the answers to this question, similar to answers of last year, the prevailing opinion is that the automotive manufacturers of BRIC countries will primarily prefer “Eastern European Countries” as their manufacturing hub for the European market, in the event that they penetrate the global market. On the Market side; 52% of ODD members and 64% of OYDER members are of this opinion. On the Industry side, while 53% of TAYSAD members are of the same opinion, 44% of OSD members, who gave North African countries an equal chance last year, indicated “Eastern European Countries” in their response.

Ergün KışKPMG Turkey

Head of Automotive

Partner, Audit

Turkey’s automotive sector is going through a critical period in attracting new investors and maintaining sustainable growth.

According to the results of our survey, penetration of automotive manufacturers of BRIC countries to the European market is inevitable, and the expectations are that this penetration will be realized in the near future. When the latest developments are taken into account, it is possible to say that this process has already begun. Chinese passenger cars manufacturers are trying to penetrate the European market by employing two different methods: through partnerships or through their own brands.

The latest developments such as the investment of Chinese Dongfeng Motor Co. in PSA Peugeot Citroen, are an important indication in this sense. Furthermore, Volvo had been acquired by Chinese Geely in 2010.

On the other hand, Qoros started manufacturing activities in Europe and manufactured its first vehicles in Slovakia. Managed by German executives, the brand aims to enter the German market by 2015. In the meantime, yet another challenge has been overcome: Qoros became the first Chinese manufacturer to earn five stars in EuroNCAP crash tests with Qoros 3, achieving the highest level in this regard.

The fact that the participants view Eastern Europe to be on advantageous side despite all positive aspects of the Turkish automotive sector; and that Turkey has lost points against her competitors in this regard compared to last year, can be seen as a warning sign for the Turkish automotive sector. These results can be viewed as indicators of the following three needs in particular: 1. Bringing Turkey’s automotive market to a more attractive status, 2. Making the investment environment more efficient, 3. Increasing predictability for the investors.

Insight

27%

11%

7%

1% 2%

53%

52%

27%

14%

4%

2%

19% 64%

6%

1% 1%

26%

9%

18%

1%

44%

2%


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

10%

27%

11%

7%

1% 2%

53%

52%

27%

14%

4%

2%

19% 64%

6%

1% 1%

26%

9%

18%

1%

44%

2%


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

10%

27%

11%

7%

1% 2%

53%

52%

27%

14%

4%

2%

19% 64%

6%

1% 1%

26%

9%

18%

1%

44%

2%


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

10%

TAYSAD

ODD OYDER

OSD


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu


OYDER - top 3:ODD - top 3:

52% Eastern European Countries

27% North African Countries

14% Turkey


19% Turkey



26% Turkey



27% Turkey



Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

Eastern European Countries

Turkey

North African Countries

North America

Western Europe

Far East


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

Middle East

China


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu

Turkic Republics

No response


Türkiye


Kuzey Amerika

Batı Avrupa



ÇinUzakdoğu


The Turkish automotive sector expects an investment from a new manufacturer within the next 5 years.

Do you think that new investments (investment of a passenger car or light commercial vehicle manufacturer which is not currently engaged in manufacturing activities in Turkey) will be made in Turkey in the next 5-year period? In order to provide a more general viewpoint of the expectations related to this issue, we inquired whether investments are expected in Turkey from BRIC and non-BRIC countries, particularly in terms of automotive manufacturing. The opinions of the manufacturers in European countries about the current issue of investing in Turkey are interesting. 3 out of every 4 executives in Turkey expect investments from Asia and Europe. According to the findings, it comes forward as an interesting point that European manufacturers are expected to make investments in Turkey.

A total of 61% of executives of the Turkish automotive sector expect a new investment in Turkey within the next five years. The majority (34%) is of the opinion that this investment will be made by Europe. The majority of those who expect this investment to come from Asia project that the country will be China.

Projections for new investments in Turkey within the next five years

General informationProspects for new investments in Turkey

No,I do not expect it

No idea

Japan

Yes, from other Asian countries

Yes,from Europe

2014

2014

2014

2013

2013

2014

2013

2013

23%

2%

1%

1%

42%

35%

4%

34%

Yes,From China

2014 2013

28%26%

2014

0.4%

Yes, from America


Distribution by association membersWhile the answers given to this question last year generally indicated an anticipation of new investments to be realized in Turkey; we can see that this year, the percentage of those who do not expect new investments has significantly increased on the Market side. While 44% of ODD members and 54% of OYDER members responded “No, I do not expect it”; on the Industry side, OSD members seem to be in anticipation of investments from Europe and China, each with an equal percentage of 40%, and TAYSAD members expect an investment from Europe with a percentage of 45%.

%6%3

%44%24

%24

%40

%40

%20

%2

%45

%6

%28

%20

Evet, Avrupa’dan Evet, Amerika’dan Hayır beklemiyorum JaponyaEvet, Çin’den Fikrim yok

%3

%54

%15

%29

%6%3

%44%24

%24

%40

%40

%20

%2

%45

%6

%28

%20


%3

%54

%15

%29

%6%3

%44%24

%24

%40

%40

%20

%2

%45

%6

%28

%20


%3

%54

%15

%29

%6%3

%44%24

%24

%40

%40

%20

%2

%45

%6

%28

%20


%3

%54

%15

%29

TAYSAD

ODD OYDER

OSD

Dr. Mehmet DudaroğluTAYSAD, Chairman

This year’s survey, designed to explore the expectations of the automotive sector executives for the next 5-year period, was based on the theme “Sustainable Growth”. The support that the survey has received from TAYSAD, OSD, OYDER and ODD, which are the associations that represent the Industry and the Market, is of a nature that confirms the reputability of this survey. With the added value it creates, the automotive sector is Turkey’s driving force; and the continuity of the sector’s success in exports, achieved during the last 8 years, depends on the sustainable growth of the sector.

The results of the survey indicate that representatives of the sector regard the readjustment of applied taxes as an important factor of sustainable growth. Unstable tax changes not only negatively impact the demand structure of the market, they also lead to a shrinking demand for the sector. In order to ensure that domestic production rather than imports benefit from the growth in domestic market, it is required to implement a government policy and a local administration policy that supports the usage of domestically manufactured vehicles.

Without policies that support a strong domestic market and utilize the potential of the domestic market in favor of domestic manufacturing, generating radical growth scenarios for the automotive sector and targeting to become a global player in this field are not possible.

Achievement of manufacturing and export quantities, and the export volume of US$75 billion, targeted within the scope of the Vision for 2023, depends on the development of stable domestic market dynamics.

Insight

Yes, from Europe Yes, from America Yes, from China No, I do not expect it Japan No idea

OYDER - top 3:ODD - top 3:

44% No, I do not expect it

24% Yes, from Europe

24% Yes, from China




15% Yes, from China


40% Yes, from China



28% Yes, from China



Mathieu MeyerKPMG Global Head of Automotive

KPMG Insight

Global Trends in the Automotive Sector and Opportunities for Turkey

Although the automotive industry is undergoing unprecedented change, the relatively long development cycles mean that some of these new advances may take as much as 5-10 years to evolve.

And the various changes are not taking place sequentially, which is why the trend towards e-mobility is happening in parallel with continued efforts to improve the efficiency of the internal combustion engine (ICE).

Plug-ins are becoming the dominant e-technology and are expected to take an increasing market share in the future.

The rise of alternative powertrain technologies is just one of several significant influences shaping the global automotive sector.

Automakers are undergoing changes on many other fronts too: a shift from partnerships and alliances to organic growth strategies, the continued emphasis of mobility solutions and technology as critical to OEM survival in the automotive value chain.

There is a strong correlation between technological leadership and the ability to remain independent.

A significant majority of respondents of our Global Automotive Executive Survey 2014 see emerging markets as a major growth engine for the auto industry.

Especially, the respondents feel that BRIC automakers have good export and growth opportunities.

And if the BRIC OEMs have taken to enter established markets, so they will continue to do that via hubs according to the automotive executives.

Turkey remains to serve as one of most important potential launchpads for exports to Western Europe.

Market


Once again, tax burdens are considered the most important factor for the sector.

Can you please put the following factors in order according to their level of importance in terms of their contributions to the growth of the Turkish automotive market in the next five-year period? While Turkey’s automotive sales volume was 817,620 vehicles in 2012; this figure reached 893 thousand in 2013, marking the second highest sales volume of the last decade. The share of passenger car sales in this figure was a record high of 665 thousand passenger cars.

In order to ensure that the sales continue in a sustainable manner, the most important factors impacting the sales must be investigated. Answers to this question indicate that the issue of tax burdens has the highest priority. The sector has been subject to high tax rates for several years now. However, constant increase of taxes is becoming more and more challenging for the sector. The latest increase in the rate of the Special Consumption Tax is not reflected in the results of this survey as the increase has been announced shortly after the survey was closed for answers. However, it should not be difficult to estimate probable effects of this recent development on the results. We included a special KPMG insight page at the end of this section to go over this issue in more detail.

Factors affecting the growth of the market in the next five-year period

Market: ODDFactors affecting the growth of theautomotive market

Ali BilaloğluODD, Vice Chairman

With the significant contribution of the economic stability and the growth achieved during the last decade in particular; Turkey’s automotive sector has been constantly growing each year. In parallel to all these positive developments, the sales volume of passenger cars reached a level of 664,655 in 2013, which is an all-time record.

During the last few months of 2013, we predicted in our future plans that this

process would continue and that the market would go in parallel with the previous year.

However, we are of the opinion that the draft quality loan regulations by the Banking Regulation and Supervision Agency and the increase imposed in January over the rate of Special Consumption Tax for the automotive sector will narrow the market down.

Moreover, we believe that the impact of the current economic and political

conditions in Turkey over several financial instruments including the Euro exchange rate may lead to changes in consumer behavior.

For this reason, making automotive market forecasts for 2014 today, will most likely be less than accurate. We believe that we might change 2014 targets if necessary, and that we should wait for at least the first three months in order to be able to provide an accurate foresight.

Insight

2014

2013

Decrease of tax burdens (SCT, VAT etc.) on the sector 36%

34%

31%29%

17%16%

9%

4%5%

1%

1%

1%


Process of normalization to follow the disappearance of the debt crisis in Europe

Launch of environment-friendly vehicles to the market (hybrid, electric, etc.)

Launch of a local passenger car brand to the market

Confidence in the future

Decrease of costs of interest and borrowing

Decreasing costs, and widespread availability of loans


28% of participants believe that success in the market depends on pricing and sales incentives. When financial services are also taken into account, overall percentage reaches 47%.

Success factors in competition

Market: ODDSuccess in automotive market

Dr. Hayri ErceODD, Executive Coordinator


We have completed yet another study which is prepared by ODD and TEPAV based on national and international sources, examining various aspects of the automotive sector in detail. According to the “Automotive Sector in the World and in Turkey 2013” report, automobile ownership in Turkey is below world average, one sixth of that of the US, and one fourth of that of Western Europe. While the number of automobiles per 1000 people is 919 in the US, 326 in Eastern European countries, 611 in Western European countries and 356 in Korea; this figure is 164 in Turkey. While the improvements in the incomes and loan possibilities of the consumers lead to an increase in demand for automotive products, this increase is yet to reach the desired levels.

Turkey’s vehicle park included approximately 1.5 million vehicles in early 1990s, and exceeded 13 million vehicles as of the end of 2012. Nearly half of our vehicle park comprises of vehicles aged 12 and older. 33% of these vehicles are over the age of 16, and 22% are over the age of 20. This severely harms both the economy and the environment. The tax burden imposed on the sector is evident in several phases, ranging from vehicle sales to services. The total amount of taxes arising from the sale and use of an automobile in 5 years roughly reaches the tax-inclusive sales price of that automobile. The rates of Special Consumption. Tax particularly impact demand increase to a great extent.

The recent tax increases applied to our sector, the limitations imposed by the Banking Regulation and Supervision Agency over automobile loans, as well as the upward trend in foreign exchange rates are among developments that will negatively impact the sector in the near future.

KPMG Turkey’s survey, conducted for two years running and shedding light on the sector, reflects results that are similar to our report. KPMG’s research and the study jointly undertaken by ODD and TEPAV include important findings pointing to the dynamics of the sector, and shaping the projections for the future.

Insight

28%26%

20%12%

19%19%

13%12%

11%16%

6%8%

3%7%

2014

2013

Pricing and sales incentives

New product development

Financial services

After saless services

Extent/quality of distributor network

Marketing activities

Improvement of product quality

Which issues will gain importance to be successful in the Turkish automotive market in the next five years?The automotive market is not only challenged by the tax burdens, but also by the increase in exchange rates and the credit restrictions. The increase in the rate of the Special Consumption Tax, as imposed in early 2014, has made the market conditions even more difficult. Under the light of the recent developments, market shrinkage in 2014 is also a possibility. Such challenging conditions are applicable for all sector players. However, since in a competitive environment, challenges always bring along opportunities, we inquired about ways to be successful.

Similar to last year, pricing and sales incentives ranked in the first place. Financial services, with 19%, ranked in third place. However, these two issues may be jointly evaluated. When financial services are also taken into account, this percentage increases up to 47%.

Development of new products is an important tool to think outside of pricing and sales incentives. The importance placed on this factor increased from last year’s 12% to 20%. When we look into the details of this increase, it can be said that decreases in the shares of “extent/quality of distributor network” and “improvement of product quality” were reflected as an increase in this respect.

It will not be wrong to attribute this to the fact that these two issues are already at high levels, and that they are not considered to be overly-effective in differenciating from the competition.


50%

40%

30%

20%

10%

0%

will increase by 0-50%

will increase by 50%-100%

will not changewill decline by 0-50%

will decline by 50%-100%

It is anticipated that trends in profit centers will remain the same or profitability will decrease.

What will the profitability trends of the next 5 years be for the automotive sector’s sales, service, spare parts, sales and after sales business development services (motor insurance, insurance, accessories, tires), which constitute profit centers of the sector?In recent years, the profit centers have seen a shift from sales towards after sales services. However, the profitability in these fields is also on the decline.

The anticipations as to what these trends will be is an interesting point. The majority of the participants (41%) does not anticipate any changes in the profitability of profit centers. A significant portion (38%) expects a decline in profitabilities.

Those who expect a favorable change in profitability are in the minority.

Profitability trends of the automotive sector

Market: ODDProfit Centersof the Automotive Sector

41%

35%

18%

3%

3%


Personalized sales and services are clearly the most important factor in improving customer satisfaction.

Which applications aimed at improving customer satisfaction in the automotive sector will stand out in the next five years?Customer satisfaction is of utmost importance to achieve success in sales. There are several options to ensure customer satisfaction. We inquired about the customers’ priorities among these options.

Personalized sales and services were clearly the top ranking result (49%). Other options also emphasize personalized service in general. Comparing these results with the criteria for success in competition yields an interesting outcome: although price is of utmost importance for competition, ensuring customer satisfaction depends on different factors.

Important applications for increasing customer satisfaction

Market: ODDCustomer satisfaction in the automotive sector

0

10

20

30

40

50

60

70

80

90

100

Competitive price policies

Personalized support services (private motor

insurance, spare vehicle service, etc.)

Online provision of services and

vehicle information

Personalized sales and service

campaigns

Offering a more digital showroom

experience

6% 9% 12%

15%

49%


How significant do you think the following product features will be for purchasing decisions of consumers in the next five years, in terms of the Turkish automotive market?Product features have developed considerably. In particular, environmental-friendly vehicles (reduced carbondioxide emission, manufacturing of electric cars, etc.) are on the sector’s agenda.

The results indicate that environmental-friendly vehicles and future technologies (electric cars, etc.) are not of significance in terms of purchasing decisions.

The two most important product features appear to be classical considerations. Same as last year, fuel efficiency is the most important product feature. Given that fuel prices in Turkey have long been above the prices compared to other countries, and have seen further increases due to the increases of foreign exchange rates despite the low income level of the country; this is only natural. Vehicle design features rank in the second spot. This is also a natural consideration for products of the sector.

Important product features in automotive purchase decisions

Market: ODDImportant product features in automotivepurchase decisions

Fuel efficiency and vehicle design are the most important product features in making purchase decisions this year.

2014

2013

Fuel efficiency

Vehicle design features

Safety features

Ergonomics and comfort

Environmental friendliness

30%

32%

27%

26%

18%

18%

16%

16%

8%

8%


2014

2013

Auto leasing sectoris expected to grow. 61% of the participants anticipate that this growth will exceed the growth of the automotive market, by at least 10%.

How will the automotive leasing sector change in Turkey in the next 5 years?The global importance of the auto leasing sector is unquestionable. The expectations in Turkey, within a global trend that is shifting from vehicle ownership towards usership, is interesting.

The auto leasing sector is expected to grow considerably. However, the percentage of those who expect the sector to grow declined by 9% compared to last year, and dropped down to 85%. This difference resulted from the increase in the percentage of those who expect it to remain the same, and those who expect it to decline. It would be wise to evaluate this result as an outcome which is associated with these persons’ views of the automotive sector, rather than a result that is specific to the auto leasing sector. The reason for this is that many challenges which the automotive sector faces are also applicable for the auto leasing sector as well.

Changes occurring in the Turkish automotive leasing sector in the next 5 years

Market: ODDViews on the auto leasing sector

%94

%6

2013

Will grow

Will not change

%85

%3

%12

2014

Will grow

Will decline

Will not change

Will grow at the automotive market growth rate

Will grow at a rate of 5% above at the automotive

market growth rate


market growth rate


market growth rate


market growth rate

Will grow at a rate of more than 20% above at the automotive

market growth rate

No idea

3%

16%

17%

13%

28%

28%

10%

16%

15%

7%

17%

13%

17%


Automotive Sector and Indirect Taxes

The high rate of indirect taxes such as Special Consumption Tax (SCT) and Value Added Tax (VAT) levied on sales of the automotive sector, has been the item with the highest priority on the sector executive agenda for years. Hence the “Consumption Tax Trends 2012” report issued by OECD revealed that the group consisting of Norway, Finland and Denmark together with Turkey levies clearly higher taxes on sales and registry of passenger cars than other countries, and that the taxes paid as such in these countries may cost more than the manufacturing prices of the automobiles in question. When the increases in the rate of SCT imposed at the beginning of this year are taken into account, it is evident that the sector is now under a heavier problem of indirect taxes.

You will recall that the justification of the Special Consumption Tax Law issued in 2002 specified that the objective was to maintain the burden created by the abolished taxes, duties, funds and charges on goods which are under the scope of Special Consumption Tax; and that attention would be given to impose tax rates that would not create an additional tax burden. However, today, the severe increase in the rates of Special Consumption Taxes is apparent.

When the fact that these taxes automatically increase in connection with the increasing prices, and that an increase in Special Consumption Tax requires an increase in Value Added Tax as well is taken into account; the extent of the increase in these rates and its negative impact on the sector multiplies.

Frequent increases over the rate of Special Consumption Tax narrows down the demand for new vehicles on the market and sales side, while negatively influencing decisions of local and foreign investors of the automotive sector, directing consumer preferences towards vehicles with relatively lower rates of special consumption tax and second-hand vehicles, and thus, making it difficult for the sector to plan ahead.

Fikret ÇetinkayaKPMG TurkeyPartner, Tax

KPMG Insight

Special Consumption Tax Rates (%)

Over 2000 cm3

Between 1600-2000 cm3

Under 1600 cm3

40

80

120

160

0

2730 37

1827

37 37 4046

5260

5460 60

80 80

50

7584 80 84 84

130 130

8/1/

02

10/1

4/03

11/1

4/04

3/17

/09

6/16

/09

10/1

/09

10/1

3/11

9/22

/12

1/1/

14

45

90

145


How do you think the after sales body and paint works performed at dealers’ repair shops will change during the next five years?After sales body and paint works performed at dealers’ repair shops are becoming an important problem.

A majority of the Authorized Dealers believe that the Distributors will need to start “branded motor insurance” applications in order to ensure customer satisfaction.

22% of the Authorized Dealers believe that the work capacity at repair shops will operate under the supervision of insurance companies.

The change anticipated for auto repair shops for the next five years

Market: OYDERThe change anticipated for auto repair shops

According to the Authorized Dealers the Distributors will have to expand the scope of their “branded motor insurance” applications.

60%22%

13%

4%1%

The Distributors will have to expand the scope of their “branded motor insurance” applications in order to ensure customer satisfaction

The work capacity at repair shops will operate under the supervision of insurance companies

The work capacity at repair shops will develop in line with market growth

Repair shops will downsize due to decline in profitability; mechanic workshops will develop further

Authorized services will consolidate repair shops on a regional basis to gain competitiveness through lowering costs


What level do you think the quantity of passenger cars in Turkey’s overall sales of various vehicle types will reach in five years?Recently, passenger car sales faced serious challenges in Turkey. Examples include the increase in foreign exchange rates on one side and credit restrictions on the other (and most recently, the increase in the rate of SCT which was imposed after the closing of this survey). Considering these challenges, how the Authorized Dealers, the persons who are closest to consumers, view passenger car sales is an important indication.

The results paint a promising picture. The sales volume is expected to increase despite the restrictions brought over sales by foreign exchange and credit terms. When we consider the fact that the volume of passenger car sales for 2013 was estimated to be approximately 650 thousand at the time of conducting this survey, the percentage of those who expect an increase reaches a level of 88%. The percentage of those who expect a higher increase to 1 million sales and over (in other words, an increase of more than 50%) is 20%.

Quantity of passenger cars in overall sales of various vehicle types

Market: OYDERQuantity of passenger cars in overall sales of various vehicle types

88% of the Authorized Dealers expect a continuing increase in passenger car sales. The increase is expected to reach up to 23% in 5 years.

will be between 650-800 thousand in 5 years 68%20%

9%

1%

will be 1 million in 5 years

will be 1.5 million in 5 years

will not exceed 650 thousand in 5 years


How do you expect consumer behavior over general trends to change?The more a seller is able to foresee consumer behavior, the more successful he will be. Significant changes are seen over the recent years in behaviors of consumers, particularly the young generation.

The results obtained from this survey also indicate that global changes, particularly those seen in developed countries are applicable for the Turkish market as well. It is anticipated that the young generation, particularly the Y Generation is more likely to rent vehicles when required, rather than purchasing them.

The fact that this trend is also expected to rise in Turkey is an important outcome. That being said, how the Authorized Dealers will respond to this has become an important question. Those whose expectations are as such should review their business plans before it is too late.

Change in consumer behaviors

Market: OYDERChanges in Consumer Behavior

It is anticipated that people under the age of 30 will lose their appetite to purchase vehicles and be more inclined to rent.

Özgür TezerOYDER, Secretary General

Similar to last year, one of the important questions included in this second survey that we prepared in cooperation with KPMG was whether it would be possible to attract foreign investments to Turkey. While the percentage of participants who responded “yes” to this question was only 15%; 85% specified that Turkey would not be preferred for investments. This reflects a point that must be closely investigated by the related authorities. It means that merely announcing incentives to be provided is not sufficient to attract investors, there are clearly requires other dynamics. One of them is a strong domestic market, but the fact that the most determinative factor for the domestic market, taxes, is constantly increasing at ambiguous times causes investors to cross the stability item off their list. It is certain that these results also impact domestic investors, bringing important problems concerning

industry-based issues as well as investors of retail services into spotlight.

I consider problems that are revealed on the after sales services side very important because retail investors of the automotive sector are unable to profit in this particular field due to intensive competition over sales activities. Due to the prolonged service intervals of vehicles within the scope of after sales services, and the eagerness of insurance companies to have damaged vehicles repaired in unauthorized repair shops; the after sales services side is losing its capability to be a profit center. This necessitates cooperation between providers and authorized services.

The results indicate the same. A 60% share in branded motor insurance, in fact, serves as a road map for providers. Comparing this outcome with the results concerning equivalent spare

parts will guide us in determining what needs to be done to bring back consumers who drifted away from our services involuntarily due to price differences.

The subject of equivalent spare parts is of utmost importance. In particular, considering products of a manufacturer, who is accredited by international institutions acknowledged by the sector’s authorities, as equivalent spare parts will be an appropriate approach. Other products should not be regarded as equivalent spare parts even if they are certified. Implementing this method will ensure that consumers do not suffer due to parts of extremely low quality. I regard this as an implementation which would be beneficial for brands as well.

Despite having started 2014 with bad news on arrangement of loans and tax increases, I wish the sector a productive year.

Insight

33%30%

18%

11%8%

Young buyers under the age of 30 will no longer be owners, they will rent on a periodic basis

Those who will purchase vehicles will base their decisions on affordable financing and free-of-charge periodic service options

Availability of all technological communication instruments (connectivity) in the vehicle will be a reason for preference

Hybrid or electric vehicles will be increasingly preferred if their prices decline

Vehicles with low exhaust emissions and environment-friendly features will be preferred


In terms of after sales services, do you think widespread use of equivalent spare parts in authorized services in addition to original parts will impact your competitive power?It is beneficial to increase the number of alternatives in an environment where profitability is on a constant decline, and adversely affected by competition.

The sale of spare parts is an important profit center for after sales services. Considering the fact that the profits in this field are also under pressure, increasing competition will provide new opportunities for the Authorized Dealers. Usage of equivalent parts may be such an opportunity for the Authorized Dealers. 80% of the Authorized Dealers expect sales of equivalent spare parts which are approved by leading international accreditation institutions or certified by the Distributors.

Impacts of the use of equivalent spare parts

Market: OYDERImpacts of the Use ofEquivalent Spare Parts

The Authorized Dealers expect that equivalent spare parts approved by international institutions or by the Distributors in particular will be used.

43%37%

11%

5%4%

Equivalent parts approved by leading international accreditation institutions may be used in authorized services

The Distributors should also sell equivalent spare parts with proven quality

Use of original spare parts is a must for safety. Authorized services should only use original spare parts

In order to be competitive, authorized services should use any type of spare parts, as independent services do

Poor quality parts are being sold in Turkey under the name of equivalent spare parts. Authorized services cannot take the risk of using such parts


Do you think that insurance companies and automotive companies can find a middle ground?We inquired about topics that will enable the Authorized Dealers, which provide direct employment for 70,000 people throughout Turkey, to succeed and grow further in the upcoming years.

According to our findings, coordination with insurance companies must be further strengthened in order to respond to market growth.

The attitude of insurance and automotive companies

Market: OYDERThe Attitude of Insurance andAutomotive Companies

The Authorized Dealers seek further cooperation with insurance companies.

In order to ensure smooth running of the system both parties will need to act in cooperation

The largest motor insurance agencies are the Authorized Dealers. Therefore, insurance companies will have to find a middle ground

No; insurance companies will continue to act unilaterally

Insurance companies will develop new business plans to work with authorized services

34%33%

16%

12%5%

Authorized services are at a very high level in terms of repair quality. Therefore, insurance companies must work with authorized services


In your opinion, what are the most significant administrative problems that automotive companies will be facing in the upcoming years?The Authorized Dealers are going through a rough time. Under the light of current market conditions, an improvement should not be expected in the short term; on the contrary, 2014 could be harder. The Authorized Dealers must prepare themselves for the future.

There are several important decisions that the Authorized Dealers must make in a number of fields including human resources, costs, customer relations, financial resources and sales channels. All of these are important for participants.

Although “human resources”, indicated by one out of every 4 people, is slightly ahead of other subjects, all subjects appear to be closely related, with percentages of 16% and 25%.

Administrative problems of automotive companies

Market: OYDERAdministrative Problems of Automotive Companies

The Authorized Dealers must make decisions in several important filelds: human resources, costs, customer relations, financial resources and sales channels.

25%20%

19%

16%

Problems in the field of human resources will mount up, leading to significant problems in working with competent staff members

Companies which do not employ personnel who are specialized in cost calculations, or which fail to seek professional assistance in this regard will definitely suffer from commercial loss

Companies which do not invest in customer relations departments will soon face with the risk of losing their portfolio

In line with market growth, finance management will become more prominent, increasing financial burdens will challenge companies

As sales through the internet (electronic trade) will increase, technological investments will become inevitable, company employees will have to be organized accordingly

19%


The Turkish M&A market experienced a relatively slow 2013 compared to 2012. The total number of deals decreased by 16% to 217 (2012 : 253), and the total deal value decreased to USD 17.5 billion (2012: USD22 billion). In the automotive sector, there were two announced deals in 2013 versus one in 2012.

Historically, the automotive sector was dominated by foreign manufacturers and private equity firms investing in the Turkish automotive market, driven by cost advantages and the higher growth potential in Turkey. Longer term, we see the potential for automotive dealerships to contribute to M&A activity in this sector.

Turkey’s independent and fragmented automotive dealership structure may provide an opportunity for consolidation and with it an increase of multi-brand dealerships. This is a trend we have observed in developed markets, for example in the US and Germany, and also in more emerging markets such as China. In the US and Germany, the top 20 dealerships have an overall market share of circa. 10%. In China, the top 25 dealerships have a market share of circa 14%.

In Germany, the number of independent dealerships has decreased by 50% from 18,000 in 2000 to 8,000 in 2012. Over the same period the total dealership numbers, including used car and repair service stations, decreased by 20% and the share of single-brand dealers decreased by 4% to 46%. In 2012, the top 10 distributers of the German market sold a minimum of five different brands, whilst the top 1 and 2 sold 18 and 13 different brands, respectively. In the US, as shown in the graphic, the number of dealerships between 1992 and 2012 has decreased by 25% and at the same time the average revenue has increased by 86%. Similarly, in China, revenue and profitability growth from the largest dealerships has outperformed that of smaller ones in 2011. Combined sales and net profits of domestic passenger car dealer groups with revenue of above 10 billion Yuan (USD1.6 billion) grew by 30% and 61% versus 2010 which was in excess of industry average.

Turkey is likely to see a similar trend, driven by profit and market pressures, particularly after an increase in the special consumption tax applicable to motor vehicles which became effective on 1 January 2014. Consolidation will bring scale to local dealerships which in turn provides opportunity for economies of scale through improved bargaining power, lower facility and personnel costs, better qualified personnel and alternative sales channels. Larger dealerships are also able to diversify their product offering, for example through the provision of finance and insurance products, which can further improve revenues and profitability. Consolidation in automotive retail would then also drive an increase in M&A.

Gökhan ParmaksızKPMG Turkey, Manager, Advisory

Lars MeyerKPMG Turkey, Director, Advisory

KPMG Insight

Big is better - Consolidations in automotive dealership

23500.0 21800.0

17540.0

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1992 2002 2012

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(milyon dolar)

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am b

ayii

sayı

sı

Amerika'da yıllara göre bayii sayısı ve bayii başına düşen satış geliri

Toplam bayii sayısı Bayii başına satış geliri (milyon dolar)

Number of dealerships vs revenues per dealership in the US

Num

ber

of d

eale

rshi

ps

Chart: Number of dealership numbers vs. revenues per dealership in the US.

Revenues per dealership

(US

D m

illion)

Revenues per dealership (USD million)

Number of dealerships

23500.0 21800.0

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23,500

23500.0 21800.0

17540.0

20.6809

33.0734 38.5405

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21,800

23500.0 21800.0

17540.0

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33.0734 38.5405

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17,540


Is there a need for “scrap incentive” for the automotive sector?The high level of the existing tax burden on passenger cars, primarily the recently increased SCT rate, as well as the new credit arrangements implemented by the Banking Regulation and Supervision Agency may have a significant reducing effect over the domestic automotive market in 2014. At this point, it may be beneficial to put emphasis on precautions which may reduce the effect of a significant level of shrinkage on the sector. In this context, scrap incentive is one of the precautions that comes first to mind.

“The Turkish Automotive Sector Strategy Document and Action Plan (2011-2014)” had underlined that the required legal arrangements would be introduced for scrapping vehicles that reach the end of their useful life cycle.

Currently, the most significant incentive mechanism applicable (prolonged as per Law No:6322) with respect to scrapping passenger cars is cancellation of motor vehicle tax debts for scrap vehicles that are removed from the roads.

In this context, motor vehicle tax that has accrued but has not been paid for vehicle models of 1990 and older is canceled together with the default interest, tax penalties and administrative fines in connection with thereof if these vehicles are withdrawn from traffic by the end of 2014. Although this implementation is appropriate, it is quite difficult to say that it is sufficient to meet the requirements of the Turkish Automotive Sector Strategy Paper and Action Plan, or the needs of the sector.

Within the scope of the scrap vehicle discount incentive implemented in 2003-2004, new passenger cars with engine size up to 1600cc were subject to a special consumption tax deduction of TL3,500 in 2003, and TL4,500 in 2004; and a significant recovery was achieved in the domestic market.

Looking at the distribution of vehicles in Turkey by their model years may be beneficial in providing a better understanding of the matter. The table shows the number of passenger cars with a model year of 1995 and older.

Considering the fact that the total number of passenger cars in Turkey as of the end of December 2013 is 9,283,923; it is revealed that 25% of these vehicles are aged 20 and over.

Considering the fact that older model passenger cars have low fuel efficiency, and Turkey is an important importer of scrap metal; it is apparent that the existing situation is quite problematic for both the growth of the domestic market, and the high level of Turkey’s imports of scrap metal.

Within the scope of the scrappage program successfully implemented by the Ministry of Transport, Maritime and Communication that involved withdrawal from traffic of trucks, pickup trucks, buses, minibuses and trucks over the age of 22, with the aim of increasing safety on highways, elimination of environmental pollution and maintaining a price balance in the transportation market; a total of TL500 million has been paid to 105 thousand vehicles that were turned in to directorates of scrappage.

76 million 390 vehicles with a model year of 1985 and older were previously withdrawn from the market. With the latest communique, an additional 28 thousand 310 vehicles were added to this figure.

350 thousand vehicles with a model year of 1990 and older are expected to be withdrawn from the market by the year 2023.

Incentive models such as the ones specified below may be considered with respect to vehicles to be subject to scrappage;

• Applying the scrappage program of the Ministry of Transport to passenger cars as well

• Similar to the previously implemented method, providing a certain amount of deduction in the special consumption tax on purchases of new passenger cars with small engine size,

• Implementation of a certain amount of deduction in the special consumption tax on purchases of passenger cars (for example, a deduction of 30% for 1600cc, 10% for 1600cc-2000cc and 15% for 2000cc and over),

• Providing loan support for second-hand vehicles to be purchased.

If support mechanisms such as “scrap incentive” cannot be implemented; it will not be wrong to say that the only alternative to ensure that production and growth targets of the automotive sector are met will be the “export market”.

It is worth noting that the high level of the existing tax burden on passenger cars, and the latest credit arrangements of the Banking Regulation and Supervision Agency appear to have the potential to create substantial question marks with respect to attraction of new/additional automotive investments to Turkey.

Recovery of even 50% of vehicles over the age of 20 (approximately 1.3 million vehicles) within the scope of the scrap incentive to be implemented will add dynamics to the automotive sector and the supplier industry to a great extent; in addition to decreasing our imports of scrap metal and increasing our energy efficiency. It should also be remembered that the increase in the demand for domestic vehicles in the domestic market, combined with the incentives offered by the new incentive system, may lead to new/additional investments.

Emrah AkınKPMG Turkey, Director, Tax

KPMG Insight

Number of motor vehicles by model years

Model Year Total No. of Motor Vehicles Passenger cars

1982(1) 1,428,749 397,765

1983 120,507 39,139

1984 151,340 51,826

1985 155,523 64,190

1986 167,353 84,520

1987 200,151 107,915

1988 212,208 124,647

1989 182,547 112,543

1990 318,088 203,715

1991 304,179 190,668

1992 411,712 280,056

1993 572,571 388,651

1994 468,895 337,234

1995 303,599 204,677

TOPLAM 4,997,422 2,587,546

(1) These figures cover 1982 and older vehicles.

Source: www.tuik.gov.tr

Industry


What are your next five years’ projections related to the manufacturing figures of the Turkish automotive industry, where total manufacturing quantity has been realized as 1 million and total manufacturing capacity as 1.5 million in 2012; and total manufacturing quantity has been realized as 1.1 million and total manufacturing capacity as 1.6 million in 2013?Turkey has become a manufacturing hub for Europe and an important manufacturer on a global scale. We inquired whether the increase gained in manufacturing during the past decade would be sustained over the next five years.

There are no concerns that the manufacturing figures will increase. The majority of participants expect an increase from 1 million to 1.3 million. This corresponds to an increase of 30%. However, altough this growth rate seems quite high, it should be evaluated within the context of Turkey’s growth targets.

Manufacturing expectations of the automotive industry for the next 5 years

Industry: OSDProjections Related toManufacturing Figures

93% of manufacturers are certain that manufacturing figures will increase in the next 5 years. A majority expects the manufacturing figures to exceed 1.3 million.

21%

30%

43%

40%

21%

30%

14%

will be around 1.1-1.3 million



will be around 1.7 million

2014

2013

91%

2013

Expected to increase

9%Expected

to decrease

93%

7%

2014

Expected to increase

Expected to decrease


What are your next five years’ projections related to the capacity figures of the Turkish automotive industry, where total manufacturing quantity realized as 1 million and total manufacturing capacity as 1.5 million in 2012; and total manufacturing quantity realized as 1.1 million and total manufacturing capacity as 1.6 million in 2013?Capacity increase may be regarded as an indication of the manufacturers’ confidence in Turkey. Capacity increase arises from new investments of the companies operating in the country, or new investors.

The results here indicate a very high level of confidence. The majority, with a rate of 57%, believe that the capacity increase will be above13% (whereas, only 37% participants had such expectations last year).

Capacity expectations of the automotive industry for the next 5 years

Industry: OSDProjections Related toCapacity Figures

There is a certainty that the capacity will increase. The percentage of those who anticipate a capacity increase has risen significantly from 73% to 93%.

93%

7%

2014

Expectedto increase


73%

9%

18%

2013

Expectedto increase

No idea


43%

63%

43%

25%

14%

12%




2014

2013


What are the obstacles for new investments in Turkey?As a manufacturing country, Turkey plays a role in the global competition environment. We looked into subjects which are to the disadvantage of Turkey, within the scope of the investors’ evaluation criteria.

The main obstacles for attracting new investments to Turkey are the power of major competitors on one side, and the unpredictability of the tax system on the other. In terms of global competition, the competitive power of the BRIC countries stems particularly from the large size of the markets. Moreover, the most important criteria for investors is being able to have sound forecasts. Unpredictability of the tax system is a major cause of reluctance for investors to make new investments.

Obstacles for new investments in Turkey*

Industry: OSDObstacles for new investments in Turkey

The market attractiveness of the BRICs and tax unpredictabilities are the primary obstacles for new investments in Turkey.

80%67%

33%

27%

13%

Market attractiveness of the BRICs for global investment Global unpredictability caused by

the tax system

Insufficiency of the domestic market

Insufficient railway and harbor capacity of the Marmara Region

Rapid changes in foreign exchange rates

7%

The ongoing crisis in the EU

(*) The participants were allowed to select multiple options as answers.


How can sustainability in exports be ensured in the face of the market shrinkage in Western Europe?The limited growth potential of the Western Europe market is a matter of importance to ensure sustainable growth in Turkey.

The answers given to this question indicate that the issue of highest priority is clearly the Free Trade Agreements to be signed with non-EU countries. If this can be achieved, Turkey’s automotive exports are expected to increase due to the competitive power of the sector.

Actions to be taken to ensure sustainability in exports

Industry: OSDEnsuring Sustainable Exports

Participants see Free Trade Agreements to be signed with non-EU countries as the most important aspect of ensuring sustainable exports.

Prof. Dr. Ercan TezerOSD, Secretary General

Despite the fluctuating demand structure of the market between 2002-2008 and the increasing pressure of imports, the constant development of exports reflected positively on our sector.

However, the global crisis of 2009 negatively impacted this process.

Following recovery of the economy after this crisis, annual manufacturing figure exceeded 1 million pieces in 2010 and 2013.

Despite the significant market shrinkage in the EU, our passenger car exports managed to maintain an increasing trend with investments for new models. Starting with the last quarter of 2012, passenger car imports increased sharply, and reached around 80% from 70%,

which had been maintained for the last decade. This sharp increase in passenger car imports negatively impacts our foreign trade balance despite the above-average increase in exports, which is managed to be maintained under unfavorable conditions.

On the other hand, the global manufacturing figure, which reached 87 million units in 2013 is expected to exceed 130 million in 2023. It is also expected that a fairly high overcapacity rate of around 20%-30% will be seen in the industry side. It is known that the EU market will not be able to reach its level in the past in short term, and demand from BRIC countries is expected to continue to increase. In particular, Chinese economy is seen to

have picked up a rapid growth trend again, in 2013.

While global markets are undergoing these developments, the precautions taken in Turkey in 2014 are anticipated to cause market shrinkage. Despite these conditions, our industry is expected to maintain its level of manufacturing, and increasing exports. Our industry is expected to maintain its share of around 15-16%, and thus, its rank in the first position among all sectors in the overall exports of USD 160 billion, as foreseen for the year 2014.

The US will remain to be evaluated as an alternative export market for continuity of this success.

Insight

Signing Free Trade Agreements with non-EU countries 67%

20%

7%

7%

Direct joint manufacturing with emerging markets

Eximbank loan support for penetrating into new markets

Signing bilateral agreements with emerging markets


What are the precautions that must be jointly taken by the main and the supplier industries in order to increase added value in Turkey’s automotive industry?Increasing added value is among the most important issues of Turkey’s automotive industry. Increasing added value is important for the manufacturers to be able to operate in a more profitable manner, and to increase their competitive power.

Furthermore, in an environment where current deficit has become a major problem for the country and automotive imports are constantly constrained, increasing added value is significantly important for the country’s economy as well.

R&D and product development fields are among the topics where the main and supplier industries can increase added value in cooperation. Although R&D activities of the automotive industry have shown profound developments, it is believed that several opportunities remain yet to be explored.

Precautions that must be taken by the main and the supplier industry*

Industry: OSDPrecautions that must be takenby the main and the supplier industries

R&D and product development are clearly the most significant points for the main and the supplier industries to jointly work on.

73%47%

27%

13%7%

Focusing on R&D and Product Development activities

New products and continuity of joint projects

Domestic supply of steel and plastic raw materials in particular

BrandingDevelopment of the moulding industry



What should be done to increase the involvement of the supplier industry in new vehicle projects of the main industry? The main and the supplier industries are aiming to increase the share of suppliers in new vehicle projects. We looked into how this can be achieved.

Establishing an R&D and testing infrastructure clearly appears to be the most significant issue. Despite important developments achieved in terms of testing infrastructure, several opportunities remain yet to be explored.

Actions to take to increase the involvement of the supplier industry in new vehicle projects*

Industry: OSDNew Vehicle Projects

The most important issue to increase the involvement of the supplier industry in new vehicle projects is to establish an R&D and testing infrastructure.

80%40%

33%

27%20%

To establish an R&D and testing infrastructure

Improving patent and industrial design works of suppliers

Enhancing training and human resources capabilities

Increased involvement of suppliers in projects such as TEYDEB, SAN-TEZ, etc.

Cooperation with domestic and foreign universities and institutions



KPMG Insight

Foreign Trade Costs and Competitiveness in Exports

According to the results of the automotive survey, penetration of BRIC countries’ automotive manufacturers into the European market is highly anticipated. As for selection of Turkey as a manufacturing base for market penetration, it is clear that in addition to logistics and geopolitical status, the condition of the domestic market is also very important.

Factors such as the increasing tax burden with the new special consumption tax rates, increasing consumer credit costs, new credit regulations of the Banking Regulation and Supervision Agency and increase in foreign exchange rates may cause shrinkage of Turkey’s domestic market. Additionally, derivative problems might be encountered due to risk premium associated with unpredictability. That being said, the results of the survey indicate that compared to last year, there is a significant increase in the percentage of those who expect new investments. Given the domestic market shrinkage in terms of existing sector investments, export activities will be attached further importance. It is possible to enhance competitiveness of exporters through special incentives.

During 2013, the Authorized Economic Operator-AEO application, which also involves the automotive sector, entered into implementation after the establishment of its legal basis.

This application may be of particular benefit for manufacturer-exporter companies. By granting an

Authorized Economic Operator Certificate issued by the Ministry of Customs and Trade to companies that meet certain criteria, it facilitates customs formalities to a great extent and allows reduction of costs.

Companies who hold such certificate can carry out export procedures from their own office, which in turn, reduces customs formalities and allows cost savings.

There are more than 10 thousand Authorized Economic Operators in the EU. More than 70% of customs formalities are carried out within the scope of in-situ customs clearance applications in countries such as Germany, the Netherlands, France, etc.

According to the information provided by the Ministry, the Authorized Economic Operator application may reduce costs of customs clearance procedures, which costs TL954 on average, up to 90%. Calculations indicate that the companies’ costs of customs clearance procedures and transportation of one container of products may be reduced by 17.5% on average.

Upon entering into force of the application of “in-situ customs clearance procedures for imports”, which is planned for 2014; similar advantages are expected to be provided for manufacturer-importer companies as well.

Although attraction of foreign investments and expansion of the domestic market depend on a number of variables, facilitation of customs and foreign trade procedures will allow for taking steps towards reducing costs and enhancing competitiveness.

Murat PalaoğluKPMG Turkey, Director of Customs and Foreign Trade

Difference

Exports

Imports

20 000

15 000

10 000

5 000

0

- 5 000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: TUIK (Chapter 87.)

Foreign Trade of Motor Vehicles (Million USD)


On which areas should the supplier industry focus most in the medium term? What should Turkey’s automotive supply industry do to maintain and enhance its success under ever-changing global competition conditions? The automotive industry is in a process of constant innovation and rapid change. Sectoral players must keep up with these changes. However, companies, and in particular, the supplier industry must be cautious about making decisions, as the investments tend to be large scaled and expand over medium and long term. While their positive return may take a long time, a negative return may be rapid.

In this context, it is not surprising that R&D is once again, clearly identified as the most important issue. However, there is a decline of nine points, from 39% to 30%. When the fact that strategic planning has increased by 6% is taken into account, it is apparent that the participants would like to evaluate their position and the steps that they will be taking from a wider global perspective.

The importance attached to corporate governance also underlines how important it is for the suppliers to manage their growth in a controlled manner.

Areas on which the supplier industry should focus on

Industry: TAYSADAreas on which the supplier industry should focus

R&D is once again, the primary area on which the supplier industry should focus. The rapid increase of strategic planning is remarkable.

2014

2013

30%39%

15%12%

15%9%

9%9%

6%3%

4%

3%3%

2%1%

4%

1%

Research&Development

Corporate Governance

Strategic Planning

Human Resources

Quality

Production

Marketing

Logistics

Purchasing

Sales

Finance

Being a global player

2%2%

5%

14%13%


Naciye KurtuluşKPMG Turkey

Risk Consultancy, Director

Institutionalization

Institutionalization refers to the creation of structures and processes that allow running company businesses without being dependent on the personal methods of executives, and ensuring company sustainability without any dependencies on any particular persons.

One of the most important steps of institutionalization is to create a board of directors that functions efficiently. The roles and responsibilities of the board of directors, and their working principles must be clearly defined.

In order to establish a transparent and accountable structure, an internal control and

risk management system must be created within the company; and an internal audit function must be provided to assure the board of directors and shareholders that these systems are functioning efficiently. Ethical rules which summarize the company’s values must be issued in writing, and must be shared with parties cooperated with, as well as the employees.

Creating written policies, procedures and terms of references is among corner stones of institutionalization and efficient internal control mechanisms; and it is particularly important for standardization of processes, and allowing businesses to be run without being dependent on persons.

The creation of management reports to be used by the shareholders for evaluating the performance of the company and its executives is important in terms of the efficiency and continuity of the company’s corporate management.

Institutionalization is a process; and studies indicate that companies which successfully complete this process to adopt corporate management principles are able to obtain financial sources in a more convenient manner, are advantageous in company mergers, and gain sustainable increases in their performance and productivity.

KPMG Insight

Alper KancaTAYSAD, Vice Chairman

Automotive suppliers consider R&D as the most important area on which the sector must focus in order to ensure sustainable growth in the medium and short term. With present-day numbers, 47, in other words nearly one third of the 147 R&D Centers established in Turkey comprise of automotive suppliers. When the share of the supplier industry in the general Turkish industry is taken into account, we see that the sector is represented to the highest extent in terms

of R&D Centers. This also indicates that this figure will further increase in the future.

As a result of the recent development concerning a decision that foresees reducing the number of staff members of R&D Centers to 30, subsidies for R&D Centers will be more accessible. This may, in turn, facilitate the growth of companies which are small but flexible and open to development and innovation, as well as their presence in the international arena.

On the other hand, companies should view R&D as a means to develop products and subsequently, search for ways to obtain products with high added value, rather than a method of process development, as it is widely used today. The subject of enhancing R&D competencies appears as a strong indication with respect to the subjects of attracting global investments to our country, and increasing cooperation with OEM companies.

Insight

46 Sustainable Growth in Turkish Automotive Sector

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu 47

Attracting which of the below specified strategic investments to Turkey within the scope of the New Incentive System would yield most favorable impact on the automotive industry?The incentive system aims to attract investments. Needless to say, potential investments are important for the country and the supplier industry in various respects. We looked into the investments, to which the supplier industry attaches strategic importance.

It is interesting to see that “engine and gearbox” although still ranking in first place, has declined to 45% from 56%; and that the difference here has shifted to “raw materials”. Since a majority of raw materials are imported, their prices are based on foreign currency. The costs of companies increase whenever there is an increase in foreign exchange rates. As the rate of localization increases, the dependency on foreign resources and currencies will decrease.

In line with last year’s results; hybrid, electric car technologies/electric-electronics investments are viewed as the second most important strategic investment.

Strategic investments which appear to be promising for the automotive industry

Industry: TAYSADThe New Incentive System

Engine and gearbox investments are still considered as the most important strategic investment. The importance of hybrid or electric vehicle technologies is also on the rise.

Engine - gearbox Hybrid, electric car technologies / Electric-electronic

Raw materials No idea

45%

2014

56%

31%

29%

23%

2013

11%

2%

4%

48 Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

Which actions must be taken to attract new global investments to Turkey?When asked which issues Turkey, having a strong supplier industry, considers to be important for attracting more foreign investments in this field, respondents stated that first of all, the incentive and investment conditions must be improved. Industrialists seem to agree on this issue as both TAYSAD and OSD members place the issue of improvement of incentive and investment environment to the top.

Although the importance of enhancing cooperation with Turkish supplier industry companies in global projects in the long term seems to have declined compared to last year, it remains in the second position.

Improving cooperation in the field of Research&Development follows those two issues closely.

What actions must be taken to attract new foreign investments to Turkey?*

Industry: TAYSADAttracting Global Investments to Turkey

The main and supplier industries agree: Incentive and investment environment must be improved and the supplier industry must be more involved in global projects.


80%69%

57%66%

54%53%

28%37%

6%13%

2%

Improvement of incentive and investment environment

Long-term increment of the cooperation with Turkish supplier industry brands in global projects

Enhancement of cooperation in R&D

Reasonable and applicable expectations about productivity Improvements; increasing productivity level

Enhancement of cooperation in the supply chain

Ethical approach to human resources transfers

Expansion of the domestic market

Increasing vehicle sales

2%

31%23%

2014

2013


In which areas do you think our supplier industry will increase cooperation in the medium term?Target countries of the Turkish automotive supplier industry in terms of globalization are interesting. The world is talking about the Chinese trend. How valid is this for Turkish companies? The results are interesting: China ranks in third place for the Turkish supplier industry after Russia and North America. Having just recently come out of an extensive financial and automotive crisis, North America is rising as a new country of attraction.

Compared to last year, another important development is the significant loss of interest towards Eastern European countries, which dropped down to 5% from 19%. This does not necessarily mean drifting away from Eastern European countries, but rather points to the fact that other countries have become more attractive.

China continues to rank in third place for the Turkish supplier industry, however, with a decline from 17% to 13%. This result points out that China is still a difficult country to invest in for the Turkish supplier industry.

Regions where cooperation with suppliers will increase the most in the medium term

Industry: TAYSADRegions where cooperation of suppliers is expected to increase

While Russia maintains its position in the first place, North America’s leap to the 2nd place, leaving China behind, is interesting.

2014

2013

Russia

North America

China

North Africa

Brazil

Africa

Eastern European countries

Mexico

Middle East

South Korea

India

Other

No idea 1%

1%2%

6%

1%3%

4%

4%

5%19%

9%6%

6%7%

8%

17%13%

5%18%

30%38%


Which countries are you planning to make investments in for the medium and long term?We inquired whether investments were really planned to be made in countries which the supplier industry is interested in.

According to the results, investments are planned in all countries of interest in the medium term. The only exception is China, where only 7% of participants plan to make investments, despite the fact that 13% expects cooperation with China to increase in the medium term.

Countries where investments are planned to be realized

Industry: TAYSADCountries where investments are planned to be realized

The supplier industry plans investments to countries of interest. The only exception is China, where the amount of investment plans fall far behind the interest taken in China.

2014

31%

13%

8%9%

7%7%7%6%5%5%

%2

2%1%1%

Rus

sia

Nor

th A

mer

ica

Bra

zil

Chi

na

Afr

ica

Nor

th A

fric

a

Eas

tern

Eur

opea

n C

ount

ries

Mex

ico

Mid

dle

Eas

t

Sou

th K

orea

Turk

ey

No

resp

onse

We

have

no

inve

stm

ent

plan

s ab

road

10%

20%

30%

%


Issues affecting OEM- supplier relations the most in the medium term

What are the issues affecting OEM-supplier relations the most in the medium term?The supplier industry is working with the main industry to constantly increase added value. The OEM-supplier relationship must be a close one in order to ensure that needs of the OEMs are met in the most appropriate manner.

The two most important points, similar to last year, are cooperation in global projects and R&D. However, these two points have changed places in terms of their priority; whereby cooperation in global projects became the issue with the highest priority, surpassing R&D.

As productivity reductions declined from 28% to 24%, the difference between the rates of the two subjects widened. The outlook here is in line with the impression that we get from responses given to other questions: The supplier industry has a more strategic perspective.

Industry: TAYSADIssues affecting relations betweenthe OEMs and suppliers

Great importance is given to increasing cooperation with the main industry in global projects and R&D.

Mustafa ZaimTAYSAD, Deputy Chairman

The target markets of automotive manufacturers of BRIC countries, and in particular, of China and India, which are our biggest competitors in the global sense, are more likely to be the EU countries in the future. In an environment where the domestic market is under enormous pressure due to taxes and other regulations, where imports have the biggest share in the growth of domestic market, and where importing is more convenient that ever; our chances of attracting large scale automotive investments is extremely low; as also pointed out by the results of this survey. According to the results, the majority of

the participants expect an automotive manufacturing quantity of under 1.5 million units in 5 years. This is an indicator that our country will remain a marginal manufacturer on a global scale. Another consideration is the inclination of China and India towards Western markets. However, this will not be an easy or rapidly-developing process, mainly due to extensive infrastructure, marketing, service channels and brand advantage of existing players of the developed western countries. Owing to market structure of the developed European countries, it requires a great deal of time and investments to re-establish

such an infrastructure and branding in all aspects. Of course, my opinions are applicable to vehicle manufacturing activities of the main automotive industry. As for the supplier industry, and particularly for the exchange markets; China and India are likely to have further impacts on unprotected markets such as Turkey, with relatively underdeveloped infrastructure and openness to imports of all quality levels in all aspects, and unfortunately, for countries where imports are unconstrained and uncontrolled, such as our country, this impact is more likely to develop as imports rather than investments.

Insight

2014

2013

Increasing cooperation in global projects

Increasing cooperation in R&D

Demands for productivity reductions

Supply chain management

Logistics services

Human resource transfer

Vehicle manufacturers’ quoting ethical profit margins 1%

2%

2%2%

2%

8%8%

28%24%

32%30%

29%33%


KPMG Insight

In your opinion, what are the general problems the Turkish automotive companies are facing?

The first thing that comes to mind is the rapid development of technology and the difficulty to keep up with these trends. A large part of the Turkish industry is focused on relatively analogue production with low added value. While that may go on for a long time, in the end you need to go with the major trends and to follow them. Therefore, the first big challenge that automotive companies must tackle with is to keep up with the speed of the global industry, and the second one is competition from low-wage countries. Turkey is a cheap country, but not the cheapest. Production quality and prices are quite high; but given the competition from other countries, other regions, that might tip. Therefore, Turkey must focus on continuous cost reduction.

In order for Turkey’s automotive industry to be able to develop and increase its competitive power, the industry must prepare a a growth strategy to be ready for the future, and a subpart of that is how to make sure you keep your costs under control and further reduce them.

Which areas do you think the Turkish automotive supplier industry should particularly focus on?

In my opinion the Turkish automotive supplier industry is really big and strong on a global scale. However, it mainly provides parts to the big OEMs, but relatively simple components rather than sophisticated components, which may be referred to as “analogue parts”, such as brakes, axles, etc. We know that the government and brands of the sector pursue a strategy that aims to convert Turkey’s automotive economy into a supply structure with increased added value. The strategy for achieving this goal should not be to become an OEM. Operating as an assembly hub will continue to be the focus of the Turkish automotive supplier industry; but I believe that the trend will be to upgrade the service offering to a much more sophisticated supply. Why is this important? If we look at the international growth of the automotive industry, we see that it is growing just low single digits over the time. If we look at where money is made and high growth is achieved, we see that these lie in new technologies making a car safer and more efficient. These are the big trends industry on which also the supplier industry focuses. Germany, Japan, and the UK, followed by the US are leaders in the field of innovation. Despite being an automotive hub, Turkey is lacking these aspects. Therefore, the industry’s strategy must be to get your hands on innovation in order to achieve such capability, and to become a much more independent automotive hub.

Although they can try to develop this capability themselves, but due to the really complex structure of the automotive industry, it would take almost an entire generation to build that expertise in Turkey. That being said, if the aim is, in fact, to support this industry, either the big players or the government must make strategic investments into countries like Germany, the UK, etc. on specific automotive suppliers that sit on a capability or a technology which can be used. They can either take a part of it, learn from those countries and start manufacturing in Turkey or they can acquired it as a whole and bring to Turkey.

At this point, rather than focusing on a technology that is linked to an OEM (such as a technology that is specific to Mercedes), focusing on technologies that can be used by a number of brands must be preferred. Perhaps a new safety system, advanced electronical systems, a new type of airbag or a new type of steering solutions that are independent of a brand may be developed. Thus, you can bring these technologies into Turkey and start serving the world.

What is the importance of strategic planning for the automotive industry and how can KPMG help?

Automotive is a highly capital-intensive industry. You cannot have only short term strategy, you definitely need to prepare a strategy in medium to long term. For this reason, you need to have a thorough understanding of what will happen to the industry in terms of trends, technology, developments between brands, and of what is happening to the different OEMs; and you have to base your strategy on that. So you have a lot of homework to do before actually developing your strategy.

A new automotive technology that is really catching on can materially change the industry. The hybrid cars and electronic cars, which are currently on the agenda of the sector, will have a major impact on the industry; but it is difficult to tell when at this time. If you do not position yourself to take advantage of these trends, you are bound to lose up. So strategic planning is absolutely essential.

Where can KPMG help? Let me simply put it this way: Imagine that you are an automotive supplier in Turkey or anywhere in the world. Generally speaking, you are already a large sized company, but you must provide services for OEMs. Naturally, you are spending most of your time on doing your business and making sure is running well. Therefore, you don’t have time to do your homework properly. But KPMG has a dedicated automotive practice with headquarters in Germany and branches in several countries including the UK and Japan.

If we would be engaged by an automotive supplier what we intend to do is a diagnosis: We look into your company’s position in the market, and in particular, its position with respect to the main trends. We also look into the position of your company within the competition. We have a database proprietary to KPMG that we built up and supplement with external sources to compare your company against you’re your competitors in the market. We can actually quite clearly and quickly where the company is standing. We look at now and then we look at where it should be in 5 to 10 years time. We can then make a gap analysis from what should happen. This constitutes the basis for strategic planning and enables us to help you determine the steps that you need to take to prepare yourself for that future and to have a robust business model going forward.

Raymond TimmerKPMG Turkey Partner, Advisory


Alper KancaTAYSAD, Vice Chairman

Dr. Hayri ErceODD, Executive Coordinator

Dr. Mehmet DudaroğluTAYSAD, Chairman

H. Şükrü IlısalOYDER, Chairman

Kudret ÖnenOSD, Chairman

Mustafa Bayraktar ODD, Chairman

Mustafa ZaimTAYSAD, Vice Chairman

Özgür TezerOYDER, Secretary General

Prof. Dr. Ercan TezerOSD, Secretary General

Emrah AkınKPMG Turkey, Director, Tax

Fikret ÇetinkayaKPMG Turkey, Partner, Tax

Gökhan ParmaksızKPMG Turkey, Manager, Advisory

Lars MeyerKPMG Turkey, Director, Advisory

Mathieu MeyerKPMG Global, Head of Global Automotive Practice

Murat PalaoğluKPMG Turkey, Director, Tax

Naciye KurtuluşKPMG Turkey, Director, Advisory

Raymond TimmerKPMG Turkey, Partner, Advisory

(Names are in alphabetical order.)

Acknowledgements

APPENDIX:Facts and Figures


Market


Vehicles Sales in World, 2013

Resource: ODD

CHINA 23,044

15,944

5,330

3,749

3,244

3,226

2,892

2,587

2,197

1,783

1,531

1,406

1,329

1,158

1,138

1,089

924

893

818

694

664

649

596

480

392

USA

JAPAN

GERMANY

BRAZIL

INDIA

RUSSIA

MEXICO

THAILAND

CANADA

KOREA

SPAIN

FRANCE

ENGLAND

TURKEY

BELGIUM

S. AFRICA

MALAYSIA

IRAN

ARGENTINA

NETHERLANDS

INDONESIA

AUSTRIA

ITALY

TAIWAN

5,000 10,000 15,000 20,000 25,000

x thousand units


3,257,718 2,595,713 2,207,713 1,419,494 893,124 822,950 547,904 481,724 357,892 353,195 341,281 313,067 210,948 185,939 180,042 126,689 117,751 87,096 75,206 72,975 70,448 62,570 58,954 50,88623,18922,96617,57214,4568,0738,022

Germany England France Italy Turkey Spain Belgium Netherlands Austria Poland Switzerland Sweden Denmark Czech Rep. Norway Portugal Finland Ireland Slovakia Hungary Romania Greece Slovenia Luxemburg Estonia Bulgaria Lithuania Latvia Cyprus Iceland

0 1,000,000 1,500,000 2,500,000 3,500,000500,000 2,000,000 3,000,000

Vehicle Sales during January-December 2013 in European Automotive Market

Resource: ODD

Resource: ODD

2,952,431 2,264,737 1,790,456 1,303,534 722,703 664,655 486,065 417,036 319,035 307,885 289,913 269,599 182,198 164,736 142,151 105,921 103,450 74,303 66,000 58,694 57,71056,13950,87846,62419,50019,35212,15210,6377,2747,102

Germany England France Italy Spain Turkey Belgium Netherlands Austria Switzerland Poland Sweden Denmark Czech Rep. Norway Portugal Finland Ireland Slovakia Greece Romania Hungary Slovenia Luxemburg Estonia Bulgaria Lithuania Latvia Iceland Cyprus

0 1,000,000 1,500,000 2,500,000 3,500,000500,000 2,000,000 3,000,000

Vehicle Sales during January-December 2013 in European Passenger Car Market


Vehicle Sales during January-December 2013 in European Light Commercial Vehicles Market

FranceEngland Germany Turkey ItalySpainBelgiumNetherlands PolandSwedenNorwayAustriaSwitzerlandDenmarkPortugal Czech Rep. Hungary Ireland Finland Romania Slovenia Slovakia Bulgaria Greece Luxemburg Estonia Latvia Lithuania Cyprus Iceland

0 100,000 150,000 250,000 350.00050,000 200,000 300,000

364,989 271,073 212,691 188,723 100,989 85,463 53,419 50,582 42,182 37,342 30,859 30,701 29,242 24,039 18,102 11,669 11,418 11,076 10,405 8,681 6,727 5,075 3,614 3,431 3,1422,7022,1741,823909584

400.000

Resource: ODD


Resource: TÜİK (Turkish Statistics Institute)

(x10

00 u

nits

)

15% 15% 16%

14%

12% 18%

21%

18%

26%

16%

16%

15%

12%

13%

8%

23%

25%

17%

12,062

8,113

3,948

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

GENEL TOPLAM OTOMOBİL TİCARİ ARAÇ

1-3 YAŞ 4-6 YAŞ 7-11 YAŞ 12-15 YAŞ 16-19 YAŞ + 20 YAŞ

Number of Vehicles per 1000 People

Resource: ODD

WES

TERN

EUR

OPE

612

339

923

706

617 608 608556

497545

460 433

364320

258

171 164

79 75 54

EAST

ERN

EUR

OPE

BULG

ARIA

USA

GERM

ANY

ITAL

Y

INDI

A

RUSS

IA

THAI

LAN

D

ROM

ANIA

KORE

A

SPAI

N

FRAN

CE

ENGL

AND

TURK

EY

POLA

ND

MAL

AYSI

A

JAPA

N

BRAZ

IL

CHIN

A

Age Distribution in Vehicle Park in Turkey (2013 End of Year)

0

200

600

1000

165Global Average

800

400

22%

16%

28%

10%

4,33015%10%

22%

13%

22%

11%

13,614

22%

11%

22%

12%

18%

11%

9,283

25%

12%

OVERALL SUM PASSENGER CAR COMMERCIAL VEHICLE

1-3 YEARS 4-6 YEARS 7-11 YEARS 12-15 YEARS 16-19 YEARS +20 YEARS


Passenger car and Light Commercial Vehicle Sales in Turkey (Development of Brand Shares)

Brand2012

Cumulative 2013

Cumulative Change

CumulativeUnits % Units % %

VOLKSWAGEN 92,840 11.9 112,056 13.1 20.7RENAULT 89,205 11.5 108,311 12.7 21.4FORD 106,166 13.7 108,155 12.7 1,9FIAT 102,432 13.2 97,593 11.4 -4.7OPEL 49,825 6.4 55,993 6.6 12.4HYUNDAI 46.119 5.9 49,602 5.8 7.6TOYOTA 34,576 4.4 38,443 4.5 11.2DACIA 28,964 3.7 36,395 4.3 25.7PEUGEOT 29,562 3.8 34,034 4.0 15.1MERCEDES-BENZ 21,964 2.8 30,444 3.6 38.6CITROEN 30,544 3.9 30,003 3.5 -1.8BMW 15,247 2.0 20,705 2.4 35.8NISSAN 20,120 2.6 19,295 2.3 -4.1HONDA 16,516 2.1 15,415 1.8 -6.7AUDI 13,720 1.8 14,987 1.8 9.2KIA 12,715 1.6 13,648 1.6 7.3SKODA 10,118 1.3 12,833 1.5 26.8CHEVROLET 18,492 2.4 12,506 1.5 -32.4SEAT 5,811 0.7 11,065 1.3 90.4MITSUBISHI 4,465 0.6 5,240 0.6 17.4VOLVO 5,247 0.7 5,021 0.6 -4.3ISUZU 2,684 0.3 2,838 0.3 5.7IVECO 1,673 0.2 2,204 0.3 31.7SSANGYONG 2,089 0.3 1,831 0.2 -12.4KARSAN 2,418 0.3 1,631 0.2 -32.5SUZUKI 1,780 0.2 1,623 0.2 -8.8MINI 1,758 0.2 1,557 0.2 -11.4MAZDA 1,013 0.1 1,380 0.2 36.2LAND ROVER 1,590 0.2 1,323 0.2 -16.8SUBARU 640 0.1 1,101 0.1 72ALFA ROMEO 1,052 0.1 1,030 0.1 -2.1JEEP 799 0.1 973 0.1 21.8LANCIA 276 0.0 782 0.1 183.3PROTON 760 0.1 715 0.1 -5.9TATA 1,044 0.1 642 0.1 -38.5GEELY 1,019 0.1 623 0.1 -38.9PORSCHE 497 0.1 517 0.1 4CHERY 810 0.1 492 0.1 -39.3SMART 96 0.0 110 0.0 14.6JAGUAR 84 0.0 97 0.0 15.5MASERATI 18 0.0 40 0.0 122.2DFM 921 0.1 39 0.0 -95.8INFINITI 41 0.0 37 0.0 -9.8FERRARI 21 0.0 23 0.0 9.5BENTLEY 18 0.0 21 0.0 16.7LAMBORGHINI 2 0.0 4 0.0 100ASTON MARTIN 10 0.0 1 0.0 -90SAAB 0 0.0 0 0.0 0LADA 0 0.0 0 0.0 0DAIHATSU 0 0.0 0 0.0 0OTOKAR 0 0.0 0 0.0 0BMC 0 0.0 0 0.0 0TOTAL 777,761 100 853,378 100 9.7

Resource: ODD


2013 End of Year Sales Distribution by Engine Volume

2013 End of Year Segment Distribution in Passenger Car Market

<=1600 cc 1601 cc <=2000 cc >=2001 cc

%93

%6

%1

Resource: ODD

Resource: ODD

12

2012 Ocak-Aralık/ SegmentJanuary -December/ SegmentationA (Mini) 1,458 0%

B (Entry) 185,201 33%

C (Compact) 285,816 51%

D (Medium) 66,868 12%

E (Luxury) 14,758 3%

F (Upper Luxury) 2,179 0%

TOPLAM/TOTAL 556,280

% 100%

TOPLAM/TOTAL %

0,3%

33,3%

51,4%

12,0%

2,7% 0,3%

0%

10%

20%

30%

40%

50%

60%

A (Mini) B (Entry) C (Compact) D (Medium) E (Luxury) F (Upper Luxury)

2,959

229,547

339,034

71,974

18,5292,612

32,903 Units 5,968 Units

625,753 Units

94%

5% 1%

0.4%

35%

51%

11%

3% 0.3%


Industry


Total Manufacturing Ranking across the World in 2013

Resource: OSD

CHINA 21,344

11,054

9,499

5,528

4,563

3,930

3,705

3,080

2,508

2,339

2,280

2,030

1,690

1,559

1,126

1,026

843

819

651

562

USA

JAPAN

GERMANY

S. KOREA

INDIA

BRASIL

MEXICO

THAILAND

CANADA

RUSSIA

SPAIN

FRANCE

THE UK

TURKEY

CZECH REP.

ARGENTINA

SLOVAKIA

ITALY

POLAND

5,000 10,000 15,000 20,000

x thousand units


Manufacturing of Turkish Automotive Industry Companies in 2013

COMPANY PASSENGER CAR % LORRY-SMALL % LORRY-BIG % VAN % BUS % MINIBUS % MIDIBUS % TRACTOR % TOTAL

A.I.O.S. 0 0 2,868 64 0 0 0 0 58 1 0 0 1,981 38 0 0 4,907

B.M.C. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FORD OTOSAN

0 0 0 0 6,293 25 238,120 58 0 0 36,874 98 0 0 0 0 281,287

HATTAT TARIM

0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,098 5 2,098

HONDA TURKEY

14,813 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 14,813

HYUNDAI ASSAN

102,020 16 0 0 0 0 0 0 0 0 0 0 0 0 0 0 102,020

KARSAN 0 0 90 2 900 4 10,084 2 576 7 836 2 0 0 0 0 12,486

M.BENZ TURKEY

0 0 0 0 18,394 72 0 0 4,001 48 0 0 0 0 0 0 22,395

M.A.N.TURKEY

0 0 0 0 0 0 0 0 1,300 16 0 0 0 0 0 0 1,300

OTOKAR 0 0 362 8 0 0 555 0 1,224 15 40 0 2,659 51 0 0 4,840

OYAK RENAULT

331,694 52 0 0 0 0 0 0 0 0 0 0 0 0 0 0 331,694

TEMSA GLOBAL

0 0 1,175 26 0 0 0 0 1,186 14 0 0 557 11 0 0 2,918

TOFAŞ 82,817 13 0 0 0 0 161,797 39 0 0 0 0 0 0 0 0 244,614

TOYOTA 102,260 16 0 0 0 0 0 0 0 0 0 0 0 0 0 0 102,260

TÜRK TRAKTÖR

0 0 0 0 0 0 0 0 0 0 0 0 0 0 38,411 95 38,411

TOTAL 633,604 100 4,495 100 25,587 100 410,556 100 8,345 100 37,750 100 5,197 100 40,509 100 1,166,043

SMALL LORRY: GVW 3.5-12 tons; BIG LORRY: GVW more than 12 tons

Resource: OSD

Exports of Turkish Automotive Industry Companies in 2013

Resource: OSD

COMPANY PASSENGER CAR % LORRY % VAN % BUS % MINIBUS % MIDIBUS % TRACTOR % TOTAL

A.I.O.S. 0 0 0 0 0 0 26 1 0 0 744 76 0 0 770

B.M.C. 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1

FORD OTOSAN 0 0 546 18 173,547 58 0 0 34,629 100 0 0 0 0 208,722

HATTAT TARIM 0 0 0 0 0 0 0 0 0 0 0 0 594 4 594

HONDA TURKEY 2,121 0 0 0 0 0 0 0 0 0 0 0 0 0 2,121

HYUNDAI ASSAN 85,500 18 0 0 0 0 0 0 0 0 0 0 0 0 85,500

KARSAN 0 0 12 0 10,085 3 15 0 8 0 0 0 0 0 10,120

M. BENZ TURKEY 0 0 2,470 81 0 0 2,861 64 0 0 0 0 0 0 5,331

M.A.N TURKEY 0 0 0 0 0 0 898 20 0 0 0 0 0 0 898

OTOKAR 0 0 0 0 191 0 167 4 27 0 235 24 0 0 620

OYAK RENAULT 266,508 55 0 0 0 0 0 0 0 0 0 0 0 0 266,508

TEMSA GLOBAL 0 0 27 1 100 0 530 12 0 0 6 1 0 0 663

TOFAŞ 43,467 9 0 0 116,842 39 0 0 0 0 0 0 0 0 160,309

TOYOTA 86,908 18 0 0 0 0 0 0 0 0 0 0 0 0 86,908

TÜRK TRAKTÖR 0 0 0 0 0 0 0 0 0 0 0 0 14,402 96 14,402

TOTAL 484,504 100 3,055 100 300,765 100 4,498 100 34,664 100 985 100 14,996 100 843,467


MOTOR VEHICLE MANUFACTURING AND CAPACITY - 2013

*Light vehicles include Passenger cars, vans and minibuses

CAPACITY MANUFACTURINGCAPACITYUSAGE (%)

Light Vehicles* 1,448,722 1,081,910 75

Lorry 47,418 30,082 63

Bus 8,980 8,345 93

Midibus 6,733 5,197 77

Tractor 55,000 40,509 74

Total 1,566,853 1,166,043 74

Resource: OSD

EXPORT OF AUTOMOTIVE MAIN AND SUPPLIER INDUSTRY (USD $)

Resource: OSD

Product Group 2010 2011 2012 2013 Change 2013-2012 (%)

TOTAL SUB-INDUSTRY 6,595,662,583 8,307,826,870 8,215,954,295 9,065.989,776 10

TUBE AND OUTER TYRE 988,990,821 1,373,205,546 1,199,572,093.47 1,130,088,420 -6

SAFETY GLASS 107,203,983 120,041,467 120,641,763.30 135,200,030 12

ENGINE 305,490,804 273,896,369 272,085,582.31 319,294,885 17

ACCUMULATOR 186,504,496 232,611,079 250,104,807.27 306,455,257 23

OTHER COMPONENTS AND SECTIONS 5,007,472,478 6,308,072,409 6,373,550,048.17 7,174,951,182 13

TOPLAM ANA SANAYİ 10,855,472,447 12,128,522,618 11,100,457,162 12,497,186,221 13

BUS 744,935,284 929,372,870 855,424,303.62 937,790,963 10

MIDIBUS - MINIBUS 120,378,674 145,199,034 161,806,275.12 147,802,463 -9

PASSENGER CAR 6,217,404,551 6,541,969,418 6,068,045,119.19 6,855,870,707 13

LORRY- VAN 3,363,101,038 4,034,772,621 3,433,310,998.81 3,919,399,958 14

TOW TRUCK 145,710,283 116,912,332 71,336,634.88 77,907,407 9

TRAILER AND SEMITRAILER 72,145,150 147,247,613 195,093,536.78 218,649,302 12

AGRICULTURAL TRACTOR 191,801,467 213,048,730 315,440,293.75 339,765,421 8

TOTAL 17,451,139,030 20,436,349,488 19,316,411,457 21,563,175,997 12

Sustainable Growth in the Turkish Automotive Sector 67M

anuf

actu

ring

Cap

acit

y of

the

Tur

kish

Aut

omot

ive

Indu

stry

in 2

014

Res

ourc

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AUTOMOTIVE

Overcapacity: A Potential

‘Speed Bump’ in the World’s Largest

Automotive Market

kpmg.com/cn

KPMG InternatIonal

KPMG’s Global Automotive

Executive Survey 2014

Strategies for a fast-evolving market

kpmg.com/automotive KPMG Global AutomotiveSurvey 2014

Overcapacity: A Potential Speed Bump in the World’s Largest Automotive Market

AUTOMOTIVE NOW Issue 1/2013

Trade in crisis The strategies that promise profits Losing weight is never easy Why no drive train innovations can succeed without weight reductions

After the tsunami How Japan’s car market coped with the consequences of the catastrophe

Global Automotive Retail MarketFrom selling cars on the spot to centrally managing the retail grid September 2013

Part I

KPMG Global Automotive Retail Market Study 2013

The New Incentive System for the Turkish Automotive Sector

Otomotiv Sektörü Yeni Teşvik Sistemi

Türkiye’nin 2023 hedefleri açısından otomotiv sektörü özel bir öneme sahiptir. Sektörün 2023 yılında 4 milyon adet/yıl üretim ve 3 milyon adet/yıl ihracat yapması hedeflenmektedir. 2023 yılında yapılması planlanan 3 milyon adet/yıl ihracat karşılığında beklenen ihracat geliri ise yaklaşık 75 Milyar $’dır.

19/06/2012 tarih ve 28328 sayılı Resmi Gazete’de yayımlanan 2012/3305 sayılı Bakanlar Kurulu Kararının eki “Yatırımlarda Devlet Yardımları Hakkında Karar” ile yürürlüğe konulan yeni yatırım teşvik sistemi otomotiv sektörü açısından birçok yeniliği ve fırsatı beraberinde getirmiştir. En son 15/02/2013 tarih ve 28560 sayılı Resmi Gazete’de yayımlanan 2013/4288 sayılı Bakanlar Kurulu Kararı eki “Yatırımlarda Devlet Yardımları Hakkında Kararda Değişiklik Yapılmasına Dair Karar” ile otomotiv sektörü ana ve yan sanayi yatırımlarına yeni ve önemli destekler öngörülmüştür.

Yeni Teşvik Sisteminin otomotiv sektörüne yönelik fırsatları nelerdir?

1) Asgari Yatırım Tutarları Düşürüldü2012/3305 sayılı Karar ile otomotiv yatırımlarına düzenlenecek teşvik belgeleri için gereken asgari yatırım büyüklükleri düşürülmüştür. Bu sayede daha çok yatırımın teşvik sisteminden yararlanması amaçlanmaktadır. Buna göre;

• Büyükölçekliyatırımlarkapsamınagirmebakımından“anasanayi yatırımları” için gerekli olan yatırım büyüklüğü 250 Milyon TL’den 200 Milyon TL’ye; “yan sanayi yatırımları” için ise 100 Milyon TL’den 50 Milyon TL’ye indirilmiştir.

• Bölgeselteşvikkapsamınagirmebakımından“yansanayiyatırımları” için gereken asgari yatırım büyüklüğü ise her yatırım bölgesi için 1 Milyon TL aşağı düşürülmüştür.

2) Otomotiv Sektörü Bakımından Önemli Yatırımlar “Öncelikli Yatırım” Kapsamına AlındıYeni teşvik sisteminin en önemli yeniliklerinden birisi getirdiği “Öncelikli Yatırım” kavramıdır. 2012/3305 sayılı Karar’ın 17. Maddesinde “Öncelikli Yatırım Konuları” sayılmaktadır. Bu maddede sayılan öncelikli yatırım konuları, nerede yapılırsa yapılsınlar, 5. Bölge’de uygulanan bölgesel desteklerden

yararlanabileceklerdir. Ancak yatırımın 6. Bölgede yapılması halinde, bu bölge desteklerinden yararlanılacaktır. Bu destekler kapsama giren yatırımlar için büyük fırsatlar sunmaktadır. Bu kapsamda sektör için önem arz eden “test merkezleri, rüzgâr tüneli ve benzeri nitelikteki yatırımlar” 2012/3305 sayılı Karar ile öncelikli yatırımlar arasına alınmıştır. Buna ek olarak 15/02/2013 tarihli 2013/4288 sayılı Karar ile otomotiv sektörü için çok önemli yeni destekler öngörülmüş ve belli tutarın üzerindeki ana ve yan sanayi yatırımları da öncelikli yatırım kapsamına alınmıştır. Öncelikli yatırım kapsamına yeni dâhil edilen otomotiv yatırımları şunlardır:

• Asgari300milyonTLtutarındaki“ana sanayi yatırımları”

• Asgari75milyonTLtutarındaki“motor yatırımları”

• Asgari20milyonTLtutarındaki“motor aksamları, aktarma organları ve bunların aksamları ile otomotiv elektroniğine yönelik yatırımlar”

Yukarıda da belirttiğimiz üzere, bu yatırımlar da 2013/4288 sayılı Karar ile 5. bölgede uygulanan desteklerden yararlanma imkânına kavuştular.

KPMG INTERNATIONAL

Global automotive finance and leasing:

The role of product diversification and

emerging markets in future growth

kpmg.com/automotive

Automotive Now2013 Edition

KPMG’s Global AutomotiveFinance and Leasing- The Role of Product Diversification and Emerging

Self-driving cars: The next revolutionkpmg.com | cargroup.org

Self-driving cars: The next revolution

Publications Please send an email including your contact details to [email protected]

in order to access our publications.

KPMG Türkiye2013 Otomotiv Yöneticileri Araştırması

Türkiye Otomotiv Sektörünün Geleceğe

Yolculuğu

2017 Öngörüleri

kpmg.com.tr

The Journey of the Turkish Automotive Sector in the Future

Information contained herein is of a general nature and is not directed toward any special circumstance of any individual real or corporate bodies. Despite our best effort to provide the most accurate information on time, no guarantee is given that the information is true at the time it is obtained or shall remain true afterwards. Nobody shall act depending on the information herein without taking advice from an expert according to their special circumstances. KPMG International Cooperative is a Swiss organization. Member companies in the KPMN independent companies network are affiliated to KPMG International Cooperative. KPMG International Cooperative offers no services to its customers. No member company has any enforcing or binding authority on KPMG International Cooperative or any member company leaving them encounter with any third parties.

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KPMG, KPMG logo and “cutting through complexity” are registered trade mark(s) of KPMGKPMG International Cooperative.

Contact Information

Figen Tahiroğlu WürschingCorporate Communications and Marketing Senior ManagerT:+90 216 681 9000 - 9114 E: [email protected]

Murat PalaoğluCustoms and Foreign Trade DirectorT:+90 216 681 90 00 - 9162 E: [email protected]

kpmg.com.trkpmgvergi.com

Emrah AkınTax DirectorT:+90 216 681 90 00 - 9040 E: [email protected]

Ergün KışKPMG Turkey Head of Automotive Audit, PartnerT:+90 216 681 9000 - 9173 E: [email protected]

Fikret ÇetinkayaTaxPartnerT:+90 216 681 90 00 - 9254 E: [email protected]

Lars MeyerAdvisory DirectorT:+90 216 681 90 00 - 9058E: [email protected]

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Raymond TimmerAdvisoryPartnerT:+90 216 681 90 00 - 9043 E: [email protected]

Final kpmg turkey-2014-automotive-executives-survey

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