Honda Sees a Wealth of Potential in Turkish Factory
The first Honda automobiles made in Turkey are expected to roll off assembly lines this winter, and their arrival will be a testament to the triumph of hope over experience.
Honda Motor Co. Ltd. spent five years and $25 million to build its first continental European factory on the outskirts of Istanbul. Along the way it weathered a deep recession and an economy that’s trying to break with its feudal past.
For its perseverance, Honda hopes to gain a bigger piece of Turkey’s $3.5 billion car market. Analysts say that number could double by the turn of the century.
“The demand to buy cars is there,” said Alpay Guler, a senior equity analyst at ING Barings. “There’s a huge potential.”
Honda’s cars will be made under a joint venture with Anadolu Endustri Holding AS, a diversified company whose interests include beer-making and car-exporting. Its Turkish operation joins a growing list of foreign auto ventures that include Toyota of Japan, Fiat SpA of Italy and Renault SA of France. Korean auto maker Hyundai Corp. is also considering plans to build a Turkish plant.
These car makers all see a wealth of potential in Turkey. While the annual per capita income is just $2,500, Turkey’s economy has been growing steadily for the past decade. Last year, the Istanbul Stock Exchange’s benchmark National Index was among the top 10 performers in Europe. In January, it ranked first anywhere.
The consumer auto market, still in its infant stages, also promises growth--only 50 out of every 1,000 citizens own cars, compared with 500 in Western European countries.
But the road to building cars in Turkey can be bumpy, as Honda discovered five years ago when it decided to open a factory there, enticed by government incentives. Until then it had been importing cars from its plant in Britain.
Honda settled on a site in Gebze, a suburb of Istanbul and close to major ports. Then about three years ago, Turkey was plunged into an economic crisis when the International Monetary Fund imposed an austerity program that required economic reform. The plan sent the inflation rate soaring up to 150%. Wages, especially for government employees, were almost frozen.
Within a year, the economy began to stabilize and car sales, which had dropped by almost half, started to pick up.
Turkey’s politics over the years also has proven a source of frustration. In the past year and a half alone, political rancor has caused the formation of three separate administrations.
“Turkey is trying to complete its development in a democratic way,” said Kutsan Celebican, the vice president of finance at Koc Holding AS, Turkey’s largest industrial company and partners in a car-making venture with Fiat. “It’s unavoidable that you’ll have hiccups in political life.”
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Turkey’s entry last year into the tariff- and quota-reducing Customs Union with the European Union ended government protection policies on industry and sales of imported cars nearly tripled, to about 58,000.
Honda plans to make 10,000 Civic models the first year, tripling production by the turn of the century.
“We believe some eight months from now, production will be started,” said Metin Ecevit, the managing director of Anadolu Honda.
The cars will be sold through Anadolu Honda, which is increasing its distributorships from 14 to 20.
Honda will be competing with established foreign manufacturers that include Fiat, which is a major shareholder with Koc Holding in Tofas Oto Fabrikalari AS. The two companies are pouring $500 million into the Turkish company to make it more competitive and retain market leadership. The Fiat venture has yet to introduce a new model, though.
By the year 2000, Turkey will be able to produce about 700,000 cars annually, according to the Automotive Assn. About 200,000 of those will be for export.
“We need these manufacturers,” Ecevit said. “By making these investments, it’ll give a range of models, create competition and lead to a free market.”
