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KPMG Turkey 2013 Automotive Executives Survey The Journey of the Turkish Automotive Sector into the Future 2017 Projections kpmg.com.tr About the S...

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KPMG Turkey 2013 Automotive Executives Survey

The Journey of the Turkish Automotive Sector into the Future 2017 Projections kpmg.com.tr

About the Survey The survey aims to determine 2017 sector projections of Turkey 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) and Association of Automotive Parts and Components Manufacturers (TAYSAD), Association of Authorized Dealers (OYDER) and members of these associations under the management of KPMG Turkey. In addition to the general questions asked to the members of the four associations, special questions were addressed to the members of each association under the scope of the work. The questionnaire where the online survey method was used was prepared in liaison with KPMG Turkey, all associations and ERA Research and Consultancy. Nearly 200 senior executives of leader companies in the Turkish automotive sector who are also members of these four associations participated in the survey conducted between 7 November - 10 December 2012. Results were reported in total for all association members and samples of each association were weighted on par in the study. The facts & figures in this report have the status as of end of February 2013.

Preface It is a pleasure for us to present you the “KPMG Turkey 2013 Automotive Executives Survey” which is the first comprehensive survey about the Turkish automotive sector. With this survey being a long journey’s product from the very beginning of the idea until today, we aim to paint the picture of the sector’s future by reflecting the expectations and opinions of the Turkish automotive sector executives. The automotive sector is one of the most important sectors in Turkey. It is the number one export sector for the last 7 consecutive years and provides total employment with 400 thousand people. The sector is also expected to be one of the pioneers in 2023 strategic plan foreseen for the hundredth anniversary of the Turkish Republic. The journey of the sector is followed closely in Turkey and is one of the most popular issues on the agenda. Globally, the automotive sector is going through a big change: On the one hand, critical technical changes are made such as electric vehicle, minimization of carbon dioxide emission, lesser fuel consumption and self-driving cars, on the other hand, there is a noteworthy change in the global competition. While original equipment manufacturers in Western Europe, North America and Japan are more and more challenged by original equipment manufacturers of the emerging markets, global capacity surplus emerges as another difficulty. Turkey’s automotive industry has to find a way to position itself within these dynamics. We realized KPMG Turkey 2013 Automotive Executives Survey prepared in Turkey for the first time with the support of four important associations of the sector, namely ODD, OSD, OYDER and TAYSAD and collected the ideas of nearly 200 senior executives from leader firms in the Turkish automotive sector. The participants made valuable contributions to the future of the automotive sector with their answers to the questions concerning issues on the sector’s agenda. We would like to thank particularly all associations and their representatives. We hope you will enjoy reading the Journey of the Turkish Automotive Sector into the Future.

Ferruh Tunç

KPMG Turkey Chairman Senior Partner

Ergün Kış

KPMG Turkey Head of Automotive Partner, Audit

Table of Contents Executive summary 6 I. GENERAL INFORMATION • Issues to take precedence in the following five years in the Automotive Market 8 • Estimated automotive market size 10 • Factors affecting the growth of the Automotive Market 12 • Penetration of BRIC countries to the European Market 14 • Countries/Regions to be preferred as hub by BRIC countries while penetrating into the European Market 16 • Prospects for new investment in Turkey 18 II. MARKET ODD - Association of Automotive Distributors • Factors affecting the growth of the Automotive Market • Success in the Automotive Market • Important product features in automotive purchase decisions • After-sale services to gain importance • Evaluations related to the Auto Rental Sector

22 23 24 25 26

OYDER - Association of Automotive Distributors • Factors affecting the growth of the Automotive Market • Important product features in automotive purchase decisions • After-sales services to gain Importance • Second-hand vehicle sales • Expectations of Authorized Dealers

28 29 30 31 32

III. INDUSTRY OSD - Automotive Manufacturers Association • Projections related to manufacturing figures • Projections related to capacity figures • Determining issues for new investments • Requirements for new investments • Evaluations related to overcapacity in Europe • Strategies for growth in Automotive Sector

36 37 38 39 40 41

TAYSAD - Association of Automotive Parts & Components Manufacturers • New Investment Incentive System 42 • Attracting foreign investments to Turkey 43 • Focus of interest for the supplier industry 44 • Issues to affect relations between OEMs and supplier 45 46 • Regions where cooperation of suppliers is expected to increase IV. APPENDIX: FACTS AND FIGURES





48

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The Journey of The Turkish Automotive Sector into the Future

Executive Summary

GENERAL INFORMATION • Issues to take priority in the following five years: Rearrangement of taxes on automotive sales, impacts of European crisis and excessive price competition. • The majority of the Turkish automotive sector foresees a growth of 50% at most in the following 5 years. • Tax burdens are considered to be the most significant issue in the growth of the automotive sector by passing the national income increase rate. • Automotive manufacturers of BRIC* countries are expected to penetrate in the European market in the following 6 years. • BRIC countries manufacturers are expected to prefer Eastern Europe countries as manufacturing hub while penetrating into European market. 1 out of 4 people expects them to prefer Turkey. • Turkish automotive sector expects a new manufacturer to make an investment in the following 5 years period.

* BRIC: Brazil, Russia, India, China.

The Journey of The Turkish Automotive Sector into the Future

MARKET ODD

OYDER

• Issue of priority particularly for Distributors is arrangement and reduction of tax burdens.

• Authorized Dealers and Distributors are of the same opinion: For market growth, tax burdens must be reduced at first.

• It is expected that key factor in maintaining high competition and being successful in Turkey will be pricing and sales incentives. • Fuel efficiency will be the most important product feature in making purchase decisions in the following years. • Quality and competitive spare part prices stand out among the after-sales. • Auto leasing sector is expected to grow at least 10% above the automotive sector.

• Market players think that the most significant factor in purchase decisions is fuel efficiency. OYDER and ODD members place this issue in first place and by a high percentage. • Quality, competitive spare part prices and guarantee options take precedence among the after-sales services for Authorized Dealers. • Second-hand vehicle sales are projected to increase. The majority of those with this expectation believe that the increase will be above 25%. • Leading issues given importance by Authorized Dealers are the promotion of coordination between insurance companies and Distributors and sharing stock financing with sector stakeholders.

INDUSTRY OSD

TAYSAD

• OSD members note that manufacturing figures in Turkey will continue to escalate.

• Engine and gearbox is considered as the most important strategic investment for the automotive supplier industry.

• The capacity in Turkey is considered to increase moderately. • Incentives, infrastructure/supplier base and manufacturing capacity rank in priority among the determinant issues for a new investment to come to Turkey. • It is noted that incentive and investment environment must be improved and supplier industry must participate more in global projects for new foreign investments. • Turkey will be adversely affected by the overcapacity in Western Europe in the following 5 years. • New products and technologies must be preliminarily developed for the growth of automotive industry.

• OEMs and suppliers are of the same opinion concerning new investments: Incentive and investment environment must be improved and supplier industry must be more involved in global projects. • Research and development stands out as the most important issue in the medium term for supplier industry. • In relations with the OEMs, efficiency as well as Research and Development and global projects carry importance. • For supplier industry, Russia is projected to be the most important region for cooperations.

7

8

The Journey of The Turkish Automotive Sector into the Future

General Information Issues of priority

Which issues/developments will draw attention in the following five years in the Turkish automotive market? The automotive sector is facing significant ambiguities both in Turkey and on global scale. Currently production volumes and sales expectations shrink in many regions while important technical innovations are made. We look into issues of priority in terms of the automotive sector in Turkey under these conditions. Automotive sector executives note that “rearrangement of taxes on automotive sales”, “impacts of European crisis” and “excessive price competition” rank first among issues of top priority in the following five years. Increasing market share of environment-friendly vehicles, carbon dioxide emission legislation practices and incentive policies for investments are enlisted as issues of secondary importance.

Issues to take priority in the following five years: Rearrangement of taxes on automotive sales, impacts of European crisis and excessive price competition.

Issues to take priority in automotive sec tor in the following five years

Rearrangement of taxes on automotive sales

21,2%

Impacts of European crisis

16,1%

Excessive price competition

15,3%

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

10,2%

Investment incentive policies

10,1% 6,7%

Car scrappage incentive and similar sales support Impacts of investment incentive program on automotive sector

6,4%

Developing domestic cars brand for global markets

6,2%

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

3,9%

Product features

1,9%

Increasing market share of Chinese brands

1,7%

High tax rates

0,2%

Sustainable economic growth of Turkey

0,1%

The Journey of The Turkish Automotive Sector into the Future

9

Distribution according to the association members A significant difference emerges when the results are considered as per associations: While “Rearrangement of taxes on automotive sales” (ODD 28% and OYDER 24%) comes first with respect to the market, it is observed that “impacts of European crisis” (OSD 26% and TAYSAD 19%) takes priority for the Industry. 2%

1% 1% 3%

6%

11%

11% 2% 9% 4% 28% 4%

1% 3%

3% 14%

6%

OSD

3%

11% 8%

16% 6% 23%

11%

9%

9% 4%

Impactskri ofziEuropean crisis Avrupa ni n etki l eri Impacts of investment incentive program on automotive Ya tırım teşvi k progra mının otomoti v s ektörüne etki l erisector Rearrangement of taxes onnautomotive sales enmes i Otomoti v s a tış vergi l eri ni yeni den düzenl 4% Developing domestic for global markets Küres el pa za rl a r i çi n cars yerl ibrand otomobi l ma rka s ının gel i şti ri l mes i Excessive pricebeti competition Aşırı fi ya t reka 28% Environment-friendly increasing market carbon 10% Çevre dos tu a ra çl a rınvehicles’ Pa za r pa yının a rtma s ı, share, dioxide legislation practices ka rbondiemission oks i t emi s yon mevzua tı uygul a ma l a rı 4% Ya ba ncı ya tırıml a rı teşvi k pol i ti ka l a rı Hurda a ra ç progra mı ve benzer s a tış des tekl eri Küres el ma rka l a rda ki bi rl eşme ve kons ol i da s yon s üreci ni n Türki ye otomoti v sanayisine ya ns ıma l a rı

OYDER

Çin markalarının pazar payının artması Ürün özellikleri Vergi oranlarının yüksek olması

7%

Yapazar tırımpayının teşviartması k progra mının otomoti v Çin markalarının Ürün özellikleriOtomoti v s a tış vergi l eri ni n yeni den 11%

2%

11%

5% 2%

Avrupa kri zi ni n etki l eri Ya tırım teşvi k progra mının otomoti v s ek Otomoti v s a tış vergi l eri ni n yeni den düz Küres el pa za rl a r i çi n yerl i otomobi l ma r Aşırı fi ya t reka beti Çevre dos tu a ra çl a rın Pa za r pa yının a rtm ka rbondi oks i t emi s yon mevzua tı uygul a Ya ba ncı ya tırıml a rı teşvi k pol i ti ka l a rı Hurda a ra ç progra mı ve benzer s a tış des Küres el ma rka l a rda ki bi rl eşme ve kons Türki ye otomoti v s a na yi i ne ya ns ıma l a rı

24%

Avrupa kri zi ni n etki l eri Ya tırım teşvi k progra mının otomoti v s ektörüne etki l eri Otomoti v s a tış vergi l eri ni n yeni den düzenl enmes i Küres el pa za rl a r i çi n yerl i otomobi l ma rka s ının gel i19% şti ri l mes i Aşırı fi ya t reka beti 11% Çevre dos tu a ra çl a rın Pa za r pa yının a rtma s ı, ka rbondi oks i t emi s yon mevzua tı uygul a ma l a rı Ya ba ncı ya tırıml a rı teşvi k pol i ti ka l a rı Hurda a ra ç progra mı ve benzer s a tış des tekl eri Küres el ma7% rka l a rda ki bikri rl eşme konslol i da s yon s üreci ni n Avrupa zi ni nveetki eri Türki ye otomoti v s a na yi i ne ya ns ıma l a rı 11%

26%

1% 1% 18%

10%

Çin markalarının pazar payının artması Ürün özellikleri Vergi oranlarının yüksek olması 5% Türkiyenin istikrarlı ekonomik büyümesi

10%

9%

2%

Avrupa kri zi ni n etki l eri 5% Ya tırım teşvi k progra mının otomoti v s ektörüne etki l eri 13% Otomoti v s a tış vergi l eri ni n yeni den düzenl enmes i 9% Küres el pa za rl a r i çi n yerl i otomobi l ma rka s ının gel i şti ri l mes i Aşırı fi ya t reka beti Çevre dos tu a ra çl a rın Pa za r pa yının a rtma s ı, 4% ka rbondi oks i t emi s yon mevzua tı uygul a ma l a rı Ya ba ncı ya tırıml a rı teşvi k pol i ti ka l a rı Hurda a ra ç progra mı ve benzer s a tış des tekl eri Küres el ma19% rka l a rda ki bi rl eşme ve kons ol i da s yon s üreci ni n Türki ye otomoti v sanayisine ya ns ıma l a rı

16%

ODD

1%

Avrupa kri zi ni n etki l eri Ya tırım teşvi k progra mının otomoti v s ektörün Otomoti v s a tış vergi l eri ni n yeni den düzenl en Küres el pa za rl a r i çi n yerl i otomobi l ma rka s ın Aşırı fi ya t reka beti Çevre dos tu a ra çl a rın Pa za r pa yının a rtma s ı, ka rbondi oks i t emi s yon mevzua tı uygul a ma l a Ya ba ncı ya tırıml a rı teşvi k pol i ti ka l a rı Hurda a ra ç progra mı ve benzer s a tış des tekl e s ektörüne etki Küres el ma rka l al eri rda ki bi rl eşme ve kons ol i da Türki ye otomoti v s a na yi i ne ya ns ıma l a rı

TAYSAD

düzenl enmes i Çin markalarının pazar payının artması 10% Küres el pa za rl a r i çi n yerl i otomobi l ma rka ının gel i şti ri l mes i Ürünsözellikleri Aşırı fi ya t reka beti Çevre dos tu a ra çl a rın Pa za r pa yının a rtma s ı, ka rbondi oks i t emi s yon mevzua tı uygul a ma l a rı Ya ba ncı yapolicies tırıml a rıfor teşvi k polinvestments i ti ka l a rı Incentive foreign Hurda a ra ç progra mı ve and benzer s a tış des tekl eri Car scrappage incentive similar sales support Reflections of merger consolidation process in global brands Küres el ma rka l a rda ki and bi rl eşme ve kons ol i da s yon s üreci ni n on the Turkish automotive industry Türki ye otomoti v sanayisine ya ns ıma l a rı Increasing market share of Chinese Çin markalarının pazar payının artmasıbrands Product features Ürün özellikleri Highoranlarının tax rates yüksek olması Vergi Sustainable economic growthbüyümesi of Turkey Türkiyenin istikrarlı ekonomik

Insight

Çin markalarının pazar payının artması Our sectorsÜrün put inözellikleri a lot of effort to make the important. In the following period, when the Vergi oranlarının yüksek olması world will go through a low growth, domestic Turkish automotive sector contemporary, Türkiyenin istikrarlı ekonomik büyümesi

environment-conscious, continuously developing and have international competitive power and a stronger structure. One of the most important barriers before the automotive sector to reach its current potential is the levy of high tax rates on the sales prices. Tax rates must be rendered fair and reasonable by removing excessive differences. Motor vehicles tax must be rearranged so as to decrease environmental pollution and encourage the use of new vehicles. Incentive programs announced in Turkey are also very

market and consumption dynamics must be activated in order to realize sustainable growth and increase investments, production and employment. Policies to serve for rejuvenating and renewing motor pool must be swiftly developed and applied. I would like to share some significant statistics with you: Vehicle ownership rate in Western Europe is 613 in one thousand people, 328 in Eastern Europe and 151 in Turkey. This level indicates that the market is far behind its real potential. The system related to

end of life vehicles has been outlined and legal arrangements have been made in Turkey, yet it is unfortunately not possible for the system to operate with its current tax structure. A continued End of Life Vehicle incentive which is similar to the incentives provided in the European countries and an application like the scrap incentive applied in the past must be introduced. Vehicles which threaten the security of life and property in traffic and create an increase in the carbon emission must be withdrawn from the market. It can be said that KPMG Turkey 2013 Automotive Executives Survey also reflects sectoral indicators well.

Mustafa Bayraktar ODD, Chairman

10

The Journey of The Turkish Automotive Sector into the Future

General Information Estimated automotive market size What are your expectations for the next five years regarding the Turkish automotive market, which realized 910,867 vehicle sales in total and consists of 593,519 passenger cars, 270,920 light commercial vehicle and 46,428 heavy commercial vehicle sales in 2011? It is interesting that the number of vehicles per capita in the market is low as compared to the world average despite Turkish young population and population increase. The number of passenger cars was 95 per 1000 people in 2003, whereas the number increased in the last 10 years up to 151 passenger cars per 1000 people according to 2011 data in Turkey. 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 results of the survey, Turkish automotive sector executives foresee growth in the Turkish automotive market, but expect it to occur below 50%.

The majority of the Turkish automotive sector foresees a maximum growth of 50% in the following 5 years.

Growth projections in five years’ period

29,2% 27,2%

Increase Decrease

24%

6,9%

5% 0,4%

0,4% 1,1%

less than 600 thousand

between 600-700 thousand

0,8%

between 700-800 thousand

between 800-910 thousand

between 910-1.100 thousand

between 1.100-1.200 thousand

between 1.200-1350 thousand

between 1.350-1.500 thousand

more than 1,500 thousand

No Idea

The Journey of The Turkish Automotive Sector into the Future

11

Distribution according to the association members When the results are evaluated based on associations, it is noted that evaluations of ODD, OYDER and OSD members are predominantly between 910 and 1,350. However, TAYSAD members have a brighter view of the market. 41% of TAYSAD members expect the market to surpass 1,350 thousand.

1% 3% 0% 0% 3% 9%

9% 23% 4%

3% 5%

6% 10%

17% 11%

16%

ODD

2%

36%

OYDER

41% 11% 27% 28%

1% 2%

29%

3%

7%

1% 2%

7%

3% 20%

20%

1% 2%

3%

7%

3%

17%

28%

OSD

21%

20%

17% 36%

17%

TAYSAD

21% 21%

29% 36%

29%

29%

Azalacak: 600 bin’den az

Artacak: 910-1.100 bin arası

Artacak: Artacak: arasıAzalacak: 910-1.100 bin arası Expected to decrease: less Expected to increase: Between thousand Azalacak: 600 bin’den Azalacak: az than 600 600thousand bin’den az 910-1.100 bin Artacak: 1.100-1.200 bin arası 600-700 bin arası910-1,100 Artacak: 1.200-1.350 bin arası Azalacak: 700-800 binarası arası1,100-1,200 Expected to decrease: between thousand Expected to increase: between thousand Artacak: 1.100-1.200Artacak: bin arası 1.100-1.200 bin Azalacak: 600-700 bin Azalacak: arası 600-700 600-700 bin arası Artacak: 1.350-1.500 bin arası Azalacak: 800-910 bin arası Expected to decrease: between 700-800 thousand Expected to increase: between 1,200-1,350 thousand Artacak: 1.200-1.350Artacak: bin arası1.200-1.350 bin arası Azalacak: 700-800 bin Azalacak: arası 700-800 bin arası Fikrim Yok Artacak: 1.500 bin’den fazla Expected to decrease: between 800-910 thousand Expected to increase: between 1,350-1,500 thousand Artacak: 1.350-1.500 Artacak: bin arası 1.350-1.500 bin arası Azalacak: 800-910 bin Azalacak: arası 800-910 bin arası No Idea Expected to increase: more than 1,500 thousand Fikrim Yok Fikrim Yok Artacak: 1.500 bin’den Artacak: fazla 1.500 bin’den fazla

12

The Journey of The Turkish Automotive Sector into the Future

General Information Factors affecting the growth of the automotive market Which factors will affect the growth of the Turkish automotive market in five years’ time? The automotive sector positioned itself among the leader sectors of growth by gaining importance in Turkey. The society has big expectations of the sector. Sustainable growth of the sector is of critical importance for the economy, development and employment of the country. For this reason, what factors will influence sustainability of the growth for the sector players are important. From the results, we see that tax burdens come first again. The fact that this issue is considered more important than the national income increase rate per capita signifies that the tax burdens obstruct the growth of automotive sector. Another striking point is that the value attached to environment-friendly cars is very low with a rate of 2.6%.

Tax burdens are considered to be the most significant issue in the growth of the automotive market by passing by national income increase rate.

Factors to affect sector growth in five years’ period

Balanced arrangement and decrease of tax burdens (Special Consumption Tax, VAT etc.) in the sector

30,6%

Increase rate of the national income per capital

20,5%

Acceleration in the export trade with the extinguishment of debt crisis in Europe

17,2% 13,5%

Consumer credit costs and sufficient volume Foreign investments and investment incentives

9,1%

Development of domestic supply chain

3,5%

Manufacturing and launching domestic brand motor vehicles

2,7%

Manufacturing and launching environment-friendly motor vehicles Penetration increase in domestic markets

2,6% 0,1%

15%

15% 25%

The Journey of The Turkish Automotive Sector into the Future 25%

25%

12% 1% 8%

8%

1%

8%

25% 1%

8%

1%

32%

Distribution according to the association OSD members12% 12%

12%

32%

13

32%

32%

When the results are evaluated on the basis of associations, it is noted that tax burdens are indicated among the issues of priority in all answers. 21% OSD

OSD

OSD

While “European debt crisis” is of priority in the industry side, “increase rate of national income per capita” stands out on the market side. “Consumer credit costs and sufficient volume” is among the other main issues for OYDER members with 21% 26% investment incentives” with 18%. 21% hand, indicate “Foreign investments and a ratio of 22%. TAYSAD members, on21% the other 1%

26%

26%

4% 1%

1%

ODD

4% 1% 5%

6%

ODD

9%

11%

15%

2% 2%

4%

2% 2%

26%

5%

6% 9%

4%

4%

2% 2% 4% 2% 2% 5% 39%

11%

32%

11%

32%

5%

OYDER

32%

11% 32%

TAYSAD

39%

ODD

22%

1% 6% 18%

18%

2%

1%

22%

22%

12% 8%

OSD

5%

7%

3%

5%

7%

12%

32% 11%

21%

24% 18%

3% 11% 23%

1%2%2% 3% 39%

2% 2%

26%

22% 39%

TAYSAD

4%

10%

20%

18%

4%

18% ile Avrupa borç krizinin ortadan kalkması 18% ihracat pazarında kazandıracağı ivme

18%

5%

22%

39%

26%

1%2%2%

1%2%2% 3%

20%

20% 13%

OYDER

39%

23%

13%

4%

1%2%2%

OYDER

7%

23%

20%

18%

23%

11%

13%

24%

18%

3%

5%

11%

13%

17%

17%

3%

5%

OSD

21%

6%

22%

22%

32%

1%

1%

14%

18%

7%

OSD

18%

2%

22%

1% 25%

8%

22%

6%

17%

6%

15% 17%

1%

TAYSAD

14%

25% 22%

18%

Sektör üzerindeki vergi yüklerinin (ÖTV, KDV

10%

4%

17%

17%

10%

4%

10%

Yerli tedarik zincirinin gelişmesi Yerli marka otomobilin üretimi ve pazara sunumu

2% Yerli tedarik zincirinin gelişmesi Avrupa borçolarak krizinin ortadan kalkması ile 4% 32% vb.) dengeli ve azaltılması Yerli düzeltilmesi tedarik Yerli zincirinin tedarik zincirinin gelişmesi gelişmesi 11% Avrupa borç Avrupa krizinin borç ortadan krizinin ortadan kalkması ile ile Acceleration in the export with the Development of domestic supply chainkredi maliyetleri ve yeterli hacmi 2%tradekalkması Tüketici TAYSAD ihracat pazarında kazandıracağı ivme 5% extinguishment debt crisiskazandıracağı in Europe ihracat pazarında ihracatof pazarında kazandıracağı ivme ivme Yerli marka otomobilin üretimi ve pazara

Yabancı yatırımlar yatırım teşvikleri Manufacturing and launching domestic brand motor Yerlive marka Yerli otomobilin marka otomobilin üretimi ve üretimi pazara vedostu pazara Çevre otomobillerin üretimi ve pazara üzerindeki vergi sunumu yüklerinin sunumu 1% 6% Balanced arrangement decrease ofSektör tax burdens vehicles 18%(ÖTV, KDV 2% Sektör üzerindeki Sektör üzerindeki vergiand yüklerinin vergi yüklerinin (ÖTV, KDV (ÖTV, KDV sunumu sunumu Kişi başına düşen milli gelirin artış hızı vb.) dengeli olarak düzeltilmesi ve azaltılması 14% (Special Consumption Tax, VAT etc.,) on the sector 32% vb.) dengeli vb.) olarak dengeli düzeltilmesi olarak düzeltilmesi ve azaltılması ve azaltılması Tüketici kredi maliyetleri ve yeterli hacmi 11% Consumer credit costs andTAYSAD sufficient Tüketici kredi Tüketici maliyetleri kredi maliyetleri ve yeterli ve hacmi yeterlivolume hacmi Yabancı yatırımlar ve yatırım teşvikleri 17% Foreign investments and investment incentives Yabancı Yabancı yatırımlaryatırımlar ve yatırım veteşvikleri yatırım teşvikleri Çevre dostu otomobillerin üretimi ve pazara Manufacturing and launching environment-friendly Çevre dostu Çevre otomobillerin dostu otomobillerin üretimi ve üretimi pazarave pazara 1% 6% 2%sunumu 18%hızı 22% Kişi başına düşen milli gelirin artış motor vehicles Increase rate of themilli national income perhızı capita Kişi başına Kişi düşen başına düşen gelirin milliartış gelirin artış hızı sunumu sunumu 14% 22%

Insight

17% 24%

22%

It is not a surprise that demand is 7% affected mostly by the purchase taxes in the Turkish automotive sector. A meagre flexibility to be made in the taxes 11% in our country, imposing the highest tax7% rates in Europe and even around the world, will lead to a serious fluctuation 11% in demand. It is of utmost importance 13% that the works we perform related to our taxation system to be taken into account for permanent growth of the sector. 13%

18%

5%

3%

22%

General welfare boost and cheap 23% credit provision in addition to the taxes are3% also significant in terms of the 5% sustainability of the demand for us, the retailers. 23% Permanent growth of the sector, minimisation of oscillations in the 20% market and maintaining a sustainable sector is very important to us; we make big efforts each day for this purpose. We 20% 18%to interpret the outcomes try of all works performed on the consumer dynamics

Avrupa borç krizinin ortadan kalkması ile 18% ihracat pazarında kazandıracağı ivme

24%

and sector18% expectations OYDER to the favour of the market and 1%do our best to carry 2%2% 3% out our responsibilities in due manner. 22% 39% OYDER Automotive sector is the most crucial driver of this country1%2%2% and we know that 3% primarily domestic market feeds 22% this 39% sector. 17% of Therefore4% we support any type 10% measures, changes and new practices to protect sustainability and continuity of the domestic market demand. 17% 4% 10%

Yerli tedarik zincirinin gelişmesi Yerli marka otomobilin üretimi ve pazara

H. Şükrü Ilısal OYDER, Chairman

14

The Journey of The Turkish Automotive Sector into the Future

General Information Penetration of BRIC countries to the European market Do you expect automotive manufacturers of BRIC countries (particularly China) to penetrate into European market? It has been discussed for years in Turkey that Chinese Car Makers in particular will make investments in the Turkish automotive sector. It is known that there are different opinions about the issue in the general public. While it is considered that these investments will provide a big opportunity for Turkey, it is also thought that this condition imposes a risk for current enterprises in Turkey. We obtained opinions of key players in the sector in order to assess the investments of BRIC countries which have not been realized yet, despite having been discussed for years. According to the results of the survey, 61% of the Turkish automotive sector executives expect BRIC countries automotive manufacturers to penetrate into European market in general terms. 92% of the executives with this expectation foresee that this penetration will take place in the following six years.

Automotive manufacturers of BRIC countries are expected to penetrate the European market in the following 6 years.

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

Yes, I expect it.

No, I do not expect it.

No Idea

61%

38%

In how many years? 47,4%

36,5%

8,3% 6,6%

1-2 years

3-4 years

5-6 years

7-8 years

0,6%

0,6%

No Idea

Other

1%

0

15

The Journey of The Turkish Automotive Sector into the Future

Distribution according to the association members 25%

1%

11%

DD

39%

39%

39% 39% 50%

50%

50%

40%

11%

OYDEROYDER OYDER OYDER OYDER OYDER 50%

50% 50%

10%

40%

ODD

ODD

39%

12%

50%

11%

39%11%

50%

38%

38%

ODD ODD 39%

53%50%

39%

8%

8% 1%

1%1%

22%

22%

22%

8%

25%

40%

40%

38%

64%

25%

25%

8% 3% 22% 22% 22%3%

1%

12% 38%

1%

OYDER

22%

16%

16%

16%

1% 22%

38%

Distribution of saying yes 2% those 2% 2% 2% 2%2%

16% 16%

17% 16%

17%

2% 2% 2% 2% 17% 17% 17% 17% 6%

16%

6%

6%

27%

2%2% 2%

17%

17%

84%

84%

16%

55%

16%

84%

84%

84% 84% 84%

OSD

25%

TAYSAD TAYSADTAYSADTAYSADTAYSAD TAYSAD

OSDOSD

OSD

25%

6%

25% 2%

TAYSAD

48%

25%

48%

48%

48%

6% 6%

48% 48%

84%

48%

TAYSAD

2% 2% 17%

74% 17%

TAYSAD

27%

27%

27%

25% 25%

6% 6% 6%

2%

6%

6%6% 6%

9%

9%

48% 25%

25%

Insight The main strategy of our automotive industry is to carry out new projects in addition to current manufacturing projects in order to increase manufacturing volume of innovative products with high added value as well as efficiency. On the other hand, the development of the design operations is a priority of our industry in cooperation with the firms in the supply chain in order to become “Global Automotive Excellence Center”.

48% 48% No Idea Other 3-4 years 5-6 years 7-8 years yıl 3-4 1-2 yıl3-4 yıl1-2 5-6 yıl 3-4 yılyıl1-2 5-6 yıl 1-2 3-4 yıl 7-8 yılyıl 5-6 yıl yıl 3-4 7-8 yılyıl 3-4 5-6 Fikrim yılyıl 7-8 yıl Fikrim yıl yok 5-6 7-8 yılyıl Fikrim yıl yok Diğer 7-8 Fikrim yok yıl Diğer yıl yıl Fikrim yok Diğer Fikrim yok Diğer yok Diğer 1-2 3-45-6 yıl 5-6 yıl7-8 7-8 Fikrim yokDiğer Diğer

1-2 yıl

1-2yıl yıl 3-4

Particularly global impacts of the developments in BRIC countries are closely monitored. Within this framework, Research and Development activities are of strategic importance to develop automotive industry and new technologies, to increase efficiency and competitive capacity as well as to sustain new export projects. Sustainable growth continues without being interrupted despite unfavorable conditions in the global economy. New

3-4 yıl

5-6 yıl

7-8 yıl

1

9% 12%

2%

14% 6% 9%9% 12%9% 12% 9%12% 1

12

2% 6%

6%

84%

1-2 yıl

16%

27%

2% 25%

2%

1-2 1-2years yıl1-2

27%

27% TAYSAD 2%2%

2%

2% 2% 2% 25%

9%

TAYSAD

16%

6%

19% 84%

16%

27% 27%

2%

OSD OSD OSD

27%

2%

2% 6%6%

6%

22

8%

8% 1%

38%

7%

8%8%

1%

40%

38% 38%

OYDER

OYDER

50%

8%

10%

10%

38%

12%

ODD

8%

12%

OYDER

43%

16%

7%

40% 40%

40% 1% 1%

OYDER 38%

10% 40%

40%

43%

ODD

25%

While OSD and ODD members do not seem very clear about this issue (OSD 55%, ODD 53%) OYDER members look 10% 10% 10% 10% 10% 10% more with 11% certain 11% 11% 11% a ratio of 64%. On the other hand, TAYSAD members take the penetration of BRIC manufacturers into European market for granted. Three out of four people foresee this and 65% of those who foresee this believe that this penetration will be rather fast (in the next four years). Members of other associations expect such penetration to occur25% 12% 12% 12% 12% 12% 12% probably after five years. 11%

DDD

25%

OYDER OY

7% 7% 25% 25% 25%

Fikrim yok

Diğer

3-4yılyıl 7-8 5-6yılyıl Fikrim 7-8 yılyokFikrim yok 5-6 Diğer

investment incentives granted to the automotive industry in addition to the business environment will make a great deal of contribution to the emerging of our country as a global center of attraction. Our industry pursues its objective to rank among the first ten in total motor vehicle manufacturing in the world, the first three in the total motor vehicle manufacturing and the first five countries in R&D by ascending the steps of EU and world rankings.

9%

Diğer

Kudret Önen OSD, Chairman

9%

1

16

The Journey of The Turkish Automotive Sector into the Future

General Information Countries/Regions to be preferred by BRIC countries as hub while penetrating into the European Market Which countries do you think automotive manufacturers of BRIC countries (particularly China) will primarily prefer in the event that they penetrate into global market (as manufacturing center for European market)? It has been under discussion for a long time that Turkey should be a manufacturing hub. In KPMG’s Global Automotive Executive Survey 2012, it was revealed that Turkey was expected to be the gateway for BRIC countries. We asked the automotive executives in Turkey, in order to discover their viewpoint about the issue, which countries could be preferred as a manufacturing hub. Interestingly, we noted from the results that the participants placed Turkey in the second rank in their evaluations. Respondent executives point out that they expect (particularly China) automotive manufacturers of BRIC countries to prefer Eastern Europe and new EU countries while penetrating into Europe market (46%). It is observed that Turkey ranks the second just ahead of North African countries. One out of four people foresees that Turkey will be used as manufacturing hub by BRIC countries.

BRIC country manufacturers are expected to prefer Eastern Europe countries as manufacturing hub while penetrating into the European market. One out of four people expects them to prefer Turkey.

Countries/Regions that BRIC countries will prefer as manufacturing hub while penetrating into the European market 46%

25%

18,3%

6,7% 2,5%

Eastern Europe and New EU countries

Turkey

North African Countries

North America

Other

1,1% No Idea

50% 50%

4%

3%2% 4% 3% 4%

%21

3% 1%

12% 12%

11%

0% 3%17

6%

1% 3% 0%

6%

21%

15%

15%16%

2% 2%

4%

5%

1% of The Turkish ODD The Journey Automotive Sector into the Future 1%

11%

25% 25%

%05

%52

39%

50% 51% 51%

Distribution according to the association members 30% 30% answers

12%

9%

3% %3be via According to the to this question, TAYSAD,3% OYDER and ODD members think that such penetration will 12% 12% %21 DSO Their Eastern Europe and new EU countries. expectations are nearly at25% the same rate (49%-51%). Results are also very 25% %2 However, 2% close to each other for Turkey (between 25%-30%). the situation is25% different from the viewpoint of8%OSD: %8 8% 2% Eastern Europe/new EU countries and North African countries rank first at nearly equal rates (33% and 32%). Turkey is at the third % 2 1 12% 12% %23 rank with 20%. 9%

32% 32%

3% 4% 3% 2% 1%

6%

33% 33%

11%

4%

ODD

3% 2% 2%

OYDER

5% 1% 3% 0%

32%

%12

ODD

51% 50%

25%

%02

4% 4%

8% 8%

20% %01

10% 10%

20% 20%

%1

1%1%

%1 4%

12% 5%

7%7%

3% 2% 2%

8%

32% 50%

7%

12%

27% %81

2%

%8%72

%51 32%18% 18% 15%

4%

8% 10%

%7

OSD

32%

1%

15% 15%

16%

OYDER

1%

21%

2%

12% 32%

18%

%5

%32

33%

26%

25%

25% %8

27% 27%

OSD

12%

12%

1%1% %31 3% 2% 4% 3% 12%

21% 21%

OYDER

33%

%4

%02

26% 26%

50%

20% 20% 9%

30%

2%

%33

12%

39%

21%

%62

O 8%

32%

16% 16%

2% 2%

4%

5%

21%

15%

32% 32%

%23

3% 2% 4%12%

4%

OSD OSD

5% 5%

33% 12%

23% 23%

TAYSAD

26%

5% 26%

21%

25% 20% 20%

12%

49% 49%

3%

1%ve ve Eastern Europe andyeni New EU Ülkeleri countries Doğu Doğu Avrupa Avrupa yeni ABAB Ülkeleri 1%

Turkey Türkiye Türkiye 27%

North African Countries Kuzey Kuzey Afrika Afrika Ülkeleri Ülkeleri

Insight

33%

1%

32% 15%

8%

8%

4%

12%

OSD

Russia Rusya RusyakoY 27% Kuzey Afrika Ülkeleri

mirkiF

Southeast Asia Güneydoğu Güneydoğu Asya Asya

Rusya 32% 7% No Idea Fikrim Fikrim YokYokaysuR Güneydoğu Asya 15%

Diğer

ireleklÜ BA iney ev apur

Fikrim Yok 13%

aysA uğodyenüG

18%

5% 5%

23% 21%

Turkey has been positioned as an automotive manufacturing hub in the global platform for many years. Turkey’s annual motor vehicle products have been exported between 60% and 80% since 2001.

ireleklÜ akirf

18%

26%

In the eyes of BRIC automotive A similar conclusion can be drawn from 20% manufacturers, Turkey’s advantages the evaluations of global executives 49% are customs union with European according to the results of KPMG’s 49% 4% 8% Union, being connected to Middle East Global Automotive Executive Survey 20% 10% in terms of transportation and customs 2013. It is understood that great 1% Kuzey Amerika Doğuincentive Avrupa ve yenisignificance AB Ülkeleri will be attached benefits provided by the new to East 1% Diğer Kuzey Amerika Doğu Avrupa ve yeni AB Ülkeleri program as well as its strong automotive Europe countries due to serious growth Rusya Türkiye 7% We witnessed during this period that infrastructure and sector experience. Fikrim Yok opportunities provided particularly for Rusya Türkiye 27% 286 manufacturing increased from Kuzey Afrika ÜlkeleriBRIC manufacturers. InGüneydoğu 15% this regard,Asya thousand up to Kuzey 1,189 Afrika thousand in 2011 However, theGüneydoğu respondents’ considering Asya Ülkeleri Turkey’s utilization of its growth which reached record level. In 2012, 745 East Europe on the advantageous side 18% potential of the domestic market will thousand motor vehicles out of 1,115 indicates that these countries may have be important for Turkeys’ competitive 5% 23% thousand manufactured in Turkey, in more significant benefits. position. other words 67%, were exported.

4%

10%

20%

Kuzey Amerika Doğu Avrupa ve yeni10% AB Ülkeleri North America Other reğiD Diğer Kuzey Kuzey Amerika Amerika akiremA yezuK 2% 1% 8%Diğer Türkiye

7%

%94

49%

Diğer 13%

Fikrim Yok

Ergün Kış KPMG Turkey Head of Automotive Partner, Audit

18

The Journey of The Turkish Automotive Sector into the Future

General Information Prospects for new investments in Turkey

Do you think that new investments will be made in Turkey in the following 5 years’ period (investment of a car/light commercial vehicle manufacturer which is not engaged in manufacturing in Turkey)? In order to provide a more general viewpoint of the expectations related to the issue, we inquired whether investments are expected to Turkey from BRIC and non-BRIC countries particularly in terms of automotive manufacturing. The opinions of the manufacturers in European countries about investment to Turkey which is currently under discussion are interesting. Three out of four executives in Turkey project investments from Asia and Europe. According to the findings, it emerges as an interesting point that European manufacturers are expected to make investments in Turkey.

Turkish automotive sector expects a new manufacturer to make investment in the following 5 years’ period.

A total of 76% of the Turkish automotive sector executives expect a new investment in Turkey within five years. The majority (42%) think that this investment will be made by Europe. The majority of those who expect this investment come from Asia project that the country will be China.

Projections of new investment in Turkey in five years’ time

Yes, Europe Evet from Avrupa’dan

42%

Yes, Asia Evet from Asya’dan Evet from Amerika’dan Yes, America 2%

No, I do not expect it. Hayır Beklemiyorum No Idea Fikrim Yok

33% 1%

W hi ch yo fro u m As cou ex nt ry pe ia y ou ct it?

22%

3% 2% 9%

From China Çin'den From Korea Kore'den From India Hindistan'dan No Idea Fikrim yok 86%

50% 50% 50% 50%

19

The Journey of The Turkish Automotive Sector into the Future 32% 3%

23% 23% 23% 23%

3%

3%

ODD

1%

Distribution according to the association members 47% 27%

27% 23%

3%

47%

38% 33%

OSD OSD OSD OSD

53%

38%

50% in Turkey Evet, A total of 71%-73% of OSD, OYDER and ODD members expect that new investments will be made in the bekliyorum Hayır, beklemiyorum following five years. TAYSAD members seem more clearly on this issue at a rate of 84%. However, we see a different Fikrim yok picture when we look at where this investment comes from: While TAYSAD and OYDER members think that such 45% 45% 45% 45% investments are likely to come from27% Europe, 27% 27% 27% ODD and OSD expect that these investments will mostly come from Asia. 23%

32%

46% 46% 46% 46%

32%

ODD

3%

3%

1% 3%

ODD

23%

47%

1%

27% 23%

OYDER

3%

27%

38%

Hayır, beklemiyorum Fikrim yok

46%

Evet, bekliyorum Hayır, beklemiyorum Fikrim yok

50%

32%

33%

Evet, bekliyorum OYDER

50%

64%

23% 23%

45%

53%

33%

27% 27% 27% 27%

27%

2% 2% 2% 2% 3%

14% 14% 14% 14%

1%

OSD

3%

23%

33%

24% 24% 24% 24%

1% 24%

Evet, bekliyorum Hayır, beklemiyorum Fikrim yok Evet, bekliyorum

46%

50%

55%

Hayır, beklemiyorum

46%

24% 24% 24% 24%

60% 60% 60% 60%

TAYSAD TAYSAD TAYSA TAYSA

45%

14%

45%

27%

1% 1% 1% 1%

OYDER

2%

27%

OSD

O

3%

24%

60%

23%

64%

Fikrim yok TAYSAD

27%

27%

OSD 2%

Evet,45% Avrupa’dan

27%

Evet, Asya’dan

2% 1%

Evet, Amerika’dan 14%

TAYSAD

Fikrim yok

Hayır beklemiyorum 24%

55%

Evet, bekliyorum 14%from Asia Yes,Avrupa’dan from Europe Yes, Yes, from America No, I do not expect it. No Idea yok Evet, Evet, Evet, Evet, Avrupa’dan Avrupa’dan Avrupa’dan Evet, Evet, Evet, Evet, Asya’dan Asya’dan Asya’dan Asya’dan Fikrim Fikrim Fikrim Fikrim yok yok yok Evet, Evet, Evet, Evet, Amerika’dan Amerika’dan Amerika’dan Amerika’dan Hayır Hayır Hayır Hayır beklemiyorum beklemiyorum beklemiyorum beklemiyorum 24% Hayır, beklemiyorum 46% Fikrim yok 24%

60%

Insight

Evet, bekliyorum Hayır, beklemiyorum Fikrim yok

24%

60% 27%

74%

With this survey prepared to determine expectations of the automotive sector executives relating to 2017, we aim to present a reference toEvet, our Avrupa’dan firms in setting out their strategies related to the future. The most important issue taking precedence for our industry 60% has been the New Incentive System. Supply manufacturers interpret the engine and driveline investments as the most strategic investment.

Evet, Avrupa’dan

With the realization of these firms. Thus the competitive power of Asya’dansector Evet,and Amerika’dan 2% investments in Turkey, the domesticEvet, Avrupa’dan both our Evet, automotive country TAYSAD 1% manufacturing rate which is nearly will be developed. 14% Evet, Asya’dan Evet, Amerika’dan Hayır beklemiyorum24% Fikrim yok 56% may increase up to the levels of We strive to gradually realize our 2023 80%. All investments naturally will objectives while focusing on the year be possible with a strong R&D work. 2017 with this survey. We believe that Improved R&D competencies will we will provide the biggest benefit 24% strengthen our brand value as well. with the New Incentive System created Supply manufacturers must strengthen while making progress. and maintain their R&D works conducted in cooperation with OEM Evet, Asya’dan

Evet, Amerika’dan

Hayır beklemiyorum

74%

Fikrim yok

Hayır beklemiyorum

Fikrim yok

Evet, bekliyorum Hayır, beklemiyorum Fikrim yok

Dr. Mehmet Dudaroğlu TAYSAD, Chairman

1%

20

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

KPMG Insight

Advances in technology are impacting the future route to success Trends like self-driving cars, e-mobility, social media and potentials in finance & lease business will have huge impact on the automotive industry in the next five to ten years. These developments will implicate different challenges for the automotive environment. But on the other hand the megatrends will create new promising opportunities for all value chain players. The traditional, “old model“ is expected to die in the middle or long run. The OEMs will have to rethink their business models and to redefine their core competencies. We expect to see a completely new automotive economy – comparable to the Telecommunication and IT industry in the last 20 years- which will also shape the Turkish automotive environment.

Mathieu Meyer KPMG Global Head of Automotive

Market

22

The Journey of The Turkish Automotive Sector into the Future

Market: ODD Factors affecting the growth of automotive market Can you please order the following factors according to their level of importance in terms of their contributions to the growth of the Turkish automotive market in the following five years’ period? The automotive market with has been growing at an important scale in the past few years, shrank by 10% in sales volumes in 2012 as compared to the previous year in Turkey. The automotive market in 2012 has grown only by 8% when compared to the sales level of 2005. This can be considered a small growth for a 7 years’ period. Accordingly, it has been an interesting field to search for growth opportunities of the market in 5 years’ time. As the key factors for the growth of the automotive market, “balanced arrangement and decrease of tax burdens on the sector” and “increase of national income per capital” are counted.

An issue of priority particularly for Distributors is arrangement and reduction of tax burdens.

Factors to affect sector growth in five years’ period

Balanced arrangement and decrease of tax burdens (Special Consumption Tax, VAT etc.) in the sector

33,6%

Increase rate of the national income per capita

29,1%

Extinguishment of European debt crisis and recovery process

16,3%

Environment-friendly vehicles' increasing market share, carbon dioxide emission legislation practices

13,6%

Launch of domestic brand motor vehicles to the market Other

5,1% 2,3%

Insight The automotive sector can be described as the driver of the economy which directly or indirectly affects many sectors. Sustainability that the Turkish economy achieved positively affects the sector and is a driving force in its development. Automotive sector which is among the critical export items of our company promotes many supply industries together with the growing market. Given that motor vehicle ownership stays at lower figures than Europe,

it would not be wrong to claim that the the highest consumption potential automotive market will be on rise in the in Europe. This will provide a big TBB araştırma - örnek following years as well. advantage raporu for the development of automotive sector in our country. On the other hand, while demographic structure changes in our country, the Finally, I would like to note that number of people between the ages balancing and even decreasing tax of 25-60 and actively involved in the burdens such as Special Consumption economic life in the last 10 years Tax and VAT on the sector is critical has increased 6 million. If birth rates for the development of the sector. In continue at this level, we can say that my opinion, improvements to be made the number of people at the same age in this subject will revive the sector range will increase in the following significantly and even create leverage period and we may be the country with effect on the economy.

Ali Bilaloğlu ODD, Vice Chairman

The Journey of The Turkish Automotive Sector into the Future

23

Market: ODD Success in automotive market

Which issues will gain importance to be successful in the Turkish automotive market in the following five years? Keeping the intensive competition in Turkey in mind, we inquired into the issues which may bring us success by differentiating brands within this competition. One out of four respondents in the survey thinks that the most important factors of being successful in the automotive market are pricing and sales incentives. Finally, intensive competition is expected to continue. It is interesting that financial services rank the second. Another noteworthy point is that improvement of product quality is not regarded as very significant by distributors among the factors which will bring success. This indicates that product quality is considered to be on top levels.

It is expected that the key factor in maintaining high competition and being successful in Turkey will be pricing and sales incentives.

Success factors in competition

Pricing and sales incentives

25,9%

Financial services

18,9%

Extent/quality of distributor network

16,4% 12,4%

After-sale service New product development Marketing activities Product quality improvement

11,9% 8,0% 6,5%

Insight We, as ODD, always participate in works guiding the sector and handling the automotive sector in various perspectives. We published our work called “Roadmap for Automotive Trade The Next Decade” four years ago with the contributions of valuable academicians. Our work carried out in 2009 discussed the development of the Turkish and global automotive sector and covered tax system, creation of scrap market, calculation of carbon emission and demand estimation through an econometric model related to future years. We completed the report “Roadmap for Automotive Trade Demand Estimates

2012-2016” which is the continuation of the previous report last year. According to 2012 sales data, we rank the 5th in Europe and 19th in the world. We ranked first again among the sectors making export from Turkey with nearly 19.3 billion dollars on an annual basis. The sector create employment for 400 thousand people. These indicators are important, but more is possible in the global competition environment. The report presents recommendations and determinations which will illuminate the future of the sector. Independent variables having emerged in the work showed that automotive

demand is positively related with income and credit volume while it is negatively related with price. Price increases made for various reasons adversely affect demand. As explicitly delineated in the report, high tax rates are the leading issue to be handled preliminarily. Particularly Private Consumption Tax rates prevent demand increase to a significant extent. Another issue to be added is the necessity to rejuvenate old motor vehichle in our country. Findings of KPMG Turkey 2013 Automotive Executives Survey related to the market indicate that these issues will continue to exist in the future.

Hayri Erce, Ph.D. ODD, Executive Coordinator

24

The Journey of The Turkish Automotive Sector into the Future

Market: ODD Important product features in automotive purchase decisions How significant do you think the following product features will be in the consumers’ decision making process in the next five years’ period in the Turkish automotive market? We wanted to find out important issues in the market during a period when product features in the international market and the Turkish market are discussed very much (particularly being environment-friendly, reducing carbon emission and electric vehicle production etc.). The fact that fuel efficiency comes first in the decision-making processes of consumers is a natural consequence given that fuel prices in Turkey are rather above the fuel prices in other countries. Taking the feature of being environmentfriendly for granted indicates that this is targeted with internal combustion engines advanced with very high technology rather than with electric vehicles.

Fuel efficiency will be the most important product feature for purchase decisions in the following years.

Product features specified in automotive purchase decisions

31,5%

26%

17,7% 16,4%

8,4%

Fuel efficiency

Vehicle design features

Safety features

Ergonomics, comfort and convenience

Being environment-friendly

The Journey of The Turkish Automotive Sector into the Future

Market: ODD After-sale services to gain importance Which after-sale services will gain importance in Turkish automotive market in the following five years? Automotive sales are performed under market conditions which are more challenging as compared to the past and where competition escalated. After-sales services gained importance in order to be successful in such an environment. We inquired which issues take precedence among these services. According to the results, quality, spare part prices and guarantee options are considered important in after-sales services.

Quality and competitive spare part prices stand out among the after-sale services.

After-sales services to gain importance

28,4%

26,5%

22,8%

15,8%

6,5%

After-sales service quality

Competitive spare part prices

Guarantee options

Lifetime service guarantee options

Quickness and honesty about recall of products

25

26

The Journey of The Turkish Automotive Sector into the Future

Market: ODD Evaluations related to auto rental sector Which changes will the automotive rental sector go through in Turkey in the following 5 years? In the automotive sector globally, people tend to be users rather than owners of the motor vehicles. In this regard, we explored the expectations of the executives in order to enlighten the next five years of the auto leasing sector in Turkey. It is observed from the results that 94% of the respondents foresee growth in the sector in the following five years. A total of 72% of these people expect the automotive market growth to be exceeded by 10% at least.

Automotive rental sector is expected to reach a growth rate above 10% of the automotive market.

Changes to occur in the Turkish automotive rental sector in the next 5 years Will not change

6%

Will grow

94%

What growth rate?

28,1%

15,6%

15,6% 12,4%

at the automotive market growth rate

5% above the automotive market growth rate

15,6% 12,6%

10% above the automotive market growth rate

15% above the automotive market growth rate

20% above the automotive market growth rate

More than 20% above the automotive market growth rate

27

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

KPMG Insight

Automotive Sector and Indirect Taxes Nevertheless there is a big domestic market in Turkey which has not reached saturation levels yet and high Special Consumption Taxes levied on passenger cars sales restrict preferences of consumers.

One of the leading basic demands related to the growth of the automotive sector in Turkey is balanced arrangement and reduction of taxes levied on passenger cars sales. The automotive sector is really one of the most affected sectors by this in Turkey where indirect taxes are much heavier than the direct taxes.

Although budget realities we are all informed of present that such taxes cannot be abandoned in the short term, common desire of the sector is the reduction of these taxes to more reasonable limits in time. Intermittent arrangements and changes in taxes are criticized not only for high rates, but also for ambiguities created in the sound future planning of the automotive sector.

It is also explicitly indicated in the “Consumption Tax Trends 2012”1 report issued by OECD that the proportion of consumption taxes to all taxes is higher than OECD average in our country and this rate tends to decrease in OECD average between 2000-2009 while it tends to increase in our country. The same report delineates that the group consisting Norway, Finland and Denmark together with Turkey has higher taxes levied on sales and registry of passenger cars than other countries and the taxes paid as such in these countries may cost more than the manufacturing prices of the motor vehicles.

Fikret Çetinkaya KPMG Turkey Tax, Partner

Let alone other taxes, duties and fees paid in Turkey, high Special Consumption Tax, on its own, narrows demand for new cars on the market and sales side, while seriously impacting consumer preferences.

ale and registration of passenger cars

Maximum overall tax rate applied upon sale and registration of passenger cars1

Chart 1 195

200 182

145

150

148

99

100

91

28

Sweden İsveç

Mexico Meksika

Hungary Macaristan

31

33

36

47

48

54

55

Portugal Portekiz

26

45

Slovenia Slovenya

25

42

OECD average OECD ortalaması

25

France Fransa

21

24

Belgium Belçika

Luxembourg Lüksemburg

20

23

Chile Şili

New Yeni Zealand Zelanda

20

23

Check Republic Çek Cumhuriyeti

Canada Kanada

19

Italy İtalya

15

Estonia Estonya

15

United Kingdom Birleşik Krallık

13

Slovakia Slovakya

12

22

Germany Almanya

10

Switzerland İsviçre

7

Japan Japonya

50

The Netherlands Hollanda

62

67

1

Consumption Tax Trends 2012, OECD

Danimarka Denmark

Turkey Türkiye

Finland Finlandiya

Israel İsrail

Norway Norveç

Ireland İrlanda

Iceland İzlanda

Greece Yunanistan

Poland Polonya

Austria Avustrya

Spain İspanya

Australia Avustralya

Korea Kore

USA ABD

0

28

The Journey of The Turkish Automotive Sector into the Future

Market: OYDER Factors affecting growth of automotive market Can you please order the following factors according to their level of importance in terms of their contributions to the growth of Turkish automotive market in the next five years’ period? We looked into the determinant factors for the growth of the distribution network of Authorized Dealers in the next five years’ period. Authorized Dealers also emphasize “arrangement and reduction of tax burdens on the sector” and “national income increase per capital” as the most important factors for the growth of the automotive market which is parallel to the results derived from Distributors. It is observed that executives on the Authorized Dealers side put more emphasis on entering the process of “the extinguishment of European debt crisis and recovery” as compared to the managers on the Distributor side.

Authorized Dealers and Distributors are of the same opinion: For market growth, tax burdens must be reduced at first.

Factors to affect sector growth in five years’ period

30,6%

25,4%

20,5%

12,7%

10,7%

Balanced arrangement and decrease of tax burdens (Special Consumption Tax, VAT etc.) on the sector Increase rate of the national income per capita Extinguishment of European debt crisis and recovery process Environment-friendly vehicles' increasing market share, carbon dioxide emission legislation practices Launch of domestic brand motor vehicles to the market Motor vehicle credit facilities

0,1%

The Journey of The Turkish Automotive Sector into the Future

29

Market: OYDER Important product features in automotive purchase decisions Which product features do you think will be important in the consumers’ decision making process in the next five years’ period in Turkish automotive market? The customer has the final say, of course. It is necessary to present appropriate products to the consumer in order to be successful in the market. Therefore we focused on the product features considered by consumers in making purchase decisions. When asked the product features to be influential in customers’ purchase decisions, Authorized Dealers put fuel efficiency in the first place. While “vehicle design features” are in second place in parallel to the answers of distributors, it is noted that Authorized Dealers put “ergonomy, comfort and convenience” before safety features with a slight difference.

Market players think that the most significant factor in purchase decisions is fuel efficiency. OYDER and ODD members place this issue in first place and by a high percentage.

Product features specified in automotive purchase decisions

30,9% 21,1%

18,3%

17,4% 10,7% 1,6%

Fuel efficiency

Vehicle design features

Ergonomics, comfort and convenience

Safety features

Being environment friendly

Vehicle price

Insight Being the single association representing retail pillar of the automotive sector, we have direct contact with consumers and try to shape the trade according to their opinions, expectations and requests. Therefore, we continuously evaluate consumer requests, follow changes and make effort to address their requests to the relevant authorities. As we also found out in our own workplaces, the most determinant competition advantage of recent years is derived from fuel consumption.

The first question asked without exception by each consumer who wants to purchase car is fuel consumption rates. The most significant reason for this is probably the excessive taxation on fuel and constant increase in pumping station prices. I see no reason for this trend to change as long as there is not any important change in fuel price policies. Insufficient levels of market penetration on electric and hybrid car side is the key indicator of the fact that no changes will occur about this issue in the following days.

In my opinion, the most interesting outcome of the survey is that vehicle price is in the end of the list with a very low percentage. Being a close witness of particularly how challenging the bargains are in showrooms, I can say that purchase price is as valuable as other indicators at least. Consumer pushes limits forward in order to purchase the vehicle at the price in his own mind.

Vedat İnciroğlu OYDER, Vice Chairman

30

The Journey of The Turkish Automotive Sector into the Future

Market: OYDER After-sales services to gain importance Which after-sale services will gain importance in Turkish automotive market in the following five years? After-sale services are gradually becoming more important for Authorized Dealers. Requests of consumers also take precedence at this point. Just like Automotive Distributors, Automotive Authorized Dealers also focus on “service quality”, “competitive spare part prices” and “guarantee options” among the after-sale services which will be more important in the future.

Quality, competitive spare part prices and guarantee options take precedence among the aftersales services for Authorized Dealers.

2016’ya kadar2016’ya üretim kadar kapasitesini üretimen kapasitesini fazla artıracak en fazla olanartıracak bölge/ülke olan bölge/ülke After-sales services gain importance 2016’ya kadartoüretim kapasitesini en fazla artıracak olan bölge/ülke 1%

27%

27%

27%

24%

24%

24%

23%

23%

23% 15%

9% 15% 1% 15% 9%

1%

1%

9% 1%

1%

Quickness honesty konusunda about products After-sales servicehizmet quality kalitesi Satış sonrası hizmet Satış kalitesi sonrası Ürün geriand çağırma Ürünrecall geriofçağırma hız ve dürüstlük konusunda hız ve dürüstlük Satış sonrası hizmet kalitesi Ürün geri çağırma konusunda hız ve dürüstlük To show interest and concern Competitive spare partparça prices fiyatları Rekabetçi yedek parça Rekabetçi fiyatları yedek İlgi, alaka göstermek İlgi, alaka göstermek Rekabetçi yedek parça fiyatları New Guarantee options Garanti seçenekleri Garanti seçenekleri Yeniproducts ürünler İlgi, alaka Yenigöstermek ürünler Garanti seçenekleri Yeni ürünler Lifetime service options Aracın ömür boyu servis Aracınhizmeti ömür guarantee boyu seçenekleri servis hizmeti seçenekleri Aracın ömür boyu servis hizmeti seçenekleri

Insight After-sale services in Turkey have not been completely understood by consumers yet; they consider these services as an obligation to prevent the vehicle being excluded from the scope of guarantee while the vehicle is under guarantee. On the contrary, after-sale services refer to the presentation of any engineering services requiring an extremely important infrastructure to the security of life and property of consumers. As it is obvious from the survey results that presentation quality of after-sale services is in the first place. Within the framework of European Union adjustment laws, spare parts of original, equivalent and subsidiary industry quality have been defined in the communique No.2005/4

on group exemption related to vertical agreements and concerted actions in motor vehicles sector in Turkey. Unfortunately, products of firms certified by an institution, but not accredited by any international institution are also considered equivalent spare part due to loopholes in this communique and many consumers are mistreated due to certified parts of low quality. Consumers who allow the use of low quality spare parts in their vehicles and are not adequately conscious about the issue try to attribute this mistreatment to the brands. Brands which design the motor vehicle, create technology and manufacture the vehicle are naturally entitled to request the use of original

spare parts for the vehicle to show its real performance. The practice of selling the vehicle with lifetime service guarantee, which is applied in the USA, seems to be a distant possibility in our country due to the structure of the sector. However, long-term guarantee practices are methods which many brands begin to prefer. While some brands include long-term guarantee options in their vehicle prices, some brands present this service under the name of extended guarantee subsequent to the sale of the vehicle. Even though other issues are also mentioned, the foregoing issues take precedence for the executives within the survey options.

Özgür Tezer OYDER, General Secretary

The Journey of The Turkish Automotive Sector into the Future

31

Market: OYDER Second-hand vehicle sales What are your expectations related to second-hand vehicle sales for the next five years? Nearly two million second-hand vehicles were sold in Turkey while nearly 800,000 new vehicles were sold in 2012. It is also expected that this level of rate will continue in the next five years. While 85% of the respondents foresee an increase in the second-hand sales in five years’ time, 61% of these people think that the increase will occur above 25%.

Second-hand vehicle sales are projected to increase. The majority of those with this expectation believe that the increase will be above 25%.

Expectations as to second-hand vehicle sales in five years I expect decrease

I expect increase

I expect no change

85%

1,5%

13,5%

Which rate do you expect the increase will be at? 50%

39,3%

8,9%

1,8%

There will be an increase between 0-25%.

There will be an increase between 25-50%.

There will be an increase between 50-100%.

There will be an increase above 100%.

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

32

Market: OYDER Expectations of authorized dealers What are the issues of priority that Authorized Dealers are in need and expect support for in order to meet market increase in future? We inquired the issues which will ensure Authorized Dealers creating direct employment for 70,000 people in Turkey attain success and growth. According to the results, the coordination particularly between Distributors and insurance companies must be improved in order to satisfy market increase. Additionally, stock financing is particularly emphasized.

Leading issues given importance by Authorized Dealers are the promotion of coordination between insurance companies and Distributors and sharing stock financing with sector stakeholders.

Issues of priority that Authorized Dealers are in need and expect support for in order to meet market increase

1,2%

25,1%

23,9%

17,5%

16,5%

15,2% 0,6%

Promotion of coordination among insurance companies and manufacturer and distributor under the scope of after-sale services Sharing stock financing with sector shareholders for presenting product in market quantities and joint sales success in future Preparing public incentive projects to create qualified personnel employment Inclusion of authorized dealers under SME by the state Paving the way for organizations in public institutions in order to take over more active roles in second-hand vehicle sales Other No response

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

KPMG Insight

Merger and Acquisition Trends in the Turkish Automotive Sector We have seen an increase in M&A activity in the Turkish automotive sector, with 2012 accounting for eight out of more than 15 acquisitions realized in the last five years in the sector. We have seen three main trends in the historical transactions: The first is the acquisition by manufacturers coming from developed markets such as Mahle, Titan Italia and Bridgestone looking to purchase manufacturing capacity, benefit from cost advantages or increase their product range. As long as price pressures from end-users in Europe persist, and Turkish manufacturers are at par with their European competitors on quality, we believe that such acquisitions will continue. The second is that global automotive companies have looked to increase their share in the value chain in the growing Turkish market by acquiring distribution channels. Johnson Controls’ acquisition of its distributor, Karat Güç Sistemleri and ALJ’s increasing its shareholding in Toyota Marketing are examples of such transactions. As the number of motor vehicles per capita in Turkey continues to increase to the levels experienced in developed countries, we expect further interest in the distributors of motor vehicles and spare parts in the domestic market.

The third is the financial investment in automotive component companies which are growing rapidly and are in need of capital. The developing domestic market and increasing capabilities of the Turkish automotive parts manufacturers present a high growth potential for domestic parts manufacturers. Our survey also indicates that the parts manufacturing industry presents opportunities for external investment. Therefore, parts manufacturers in need of capital represent an opportunity for international private equity funds. Bancroft’s acquisition of Standard Profile and UniCredit Merchant Bank’s investment in Martur are examples of such opportunities realized by financial investors. Private Equity Funds not only provide capital for the domestic automotive parts industry, but also help to find senior managers from international markets and access consumers via new sales channels. Additionally, we believe that Turkish automotive parts manufacturers have the capability to make acquisitions in Eastern Europe and neighbouring countries, mainly Russia, in the next two to four years. We see this as the next logical step for Turkish parts manufacturers looking to capture the business of their international clients in other markets, having already proven their ability to deliver on quality in the domestic market.

Keith Durward KPMG Turkey Head of Advisory, Partner

Ekrem Özer KPMG Turkey Advisory, Director

33

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

34

KPMG Insight Incentives granted to automotive sector in the New Incentive System

Last changes favorable to the automotive sector in the incentive package:

Since automotive and automotive subsidiary industry is one of the leading manufacturing sectors in Turkey, one of the arrangements which will make the largest contribution to the realization of future manufacturing, sales, export and employment objectives of the country is undoubtedly the incentives granted to this sector.

With the Council of Ministers’ Decision No.2013/4288 published in the Official Gazette of February 15, important amendments have been made in the new incentive system to the favor of the automotive sector. Automotive investments to be made in “motor land vehicles main industry” have been included among the “investment issues of priority” with the relevant Decision. Relevant amendment confirms the assessments in the graphics. Although investments will be mostly directed to zones 1, 2 and 3, now there is also an opportunity to benefit from the incentives of zone 5.

Special incentives granted to automotive sector: With the “New Incentive1” regulations put into force by being published in the Official Gazette of 19 June 2012,“special incentive” granted to automotive sector is “customs exemption” which is an important monetary incentive. With the relevant regulation, investors were allowed to import p. cars from A, B and C-segments without paying customs duty provided that it is limited with the investment period. This regulation is very reasonable for imports to be realized from countries which are not included in EU Customs Union.

Investments fulfilling the following conditions are considered “investments of priority” subsequent to the changes: • Investments in main industry amounting minimum TRY 300 million • Motor investments amounting minimum TRY 75 million

Assessment of investment incentive certificates issued to the automotive industry in 2012:

• Investments in motor components, driveline components and automotive electronics amounting minimum TRY 20 million Given the investment1% incentive certificates issued to the 3% 3% 3% 3% 1% 1% 1% 5% 5% 5% 5% automotive sector by the Treasury Under secretariat over 7% 7% 7% 7% 4% 4% 4% 4% With this amendment, it was ensured that automotive the 2012 calendar year, although incentives to the sector investments benefitted from incentives applied in 8% 8% 8% 8% were the lowest in the first zone and relatively higher zone 5 regardless of in which part of Turkey they are in other zones, 95% of the investments to be realized realized. For example, corporate tax reduction at 40%, with investment incentive certificates granted under insurance premium employer’s share for seven years and the scope of the “new incentive system” concentrate investment place allocation are the main ones. Incentive in zones 1, 2 and 3 which are manufacturing centers of certificates obtained further to the applications submitted 30% 30% 30% 30% the “automotive sector” manufacturers. Similarly, 97% 58% 58% 58% 58% 84% 84% 84% 84% 2012 can also benefit from these incentives. of the fixed investment amount is located in zones 1, 2 Consequently, these changes are aimed to increase and 3. While the share of fixed investment amount of the employment, “rate of domestic products” percentages automotive sector in all sectors is 4.4% in the Januaryand the export volume of the sector by rendering December2012 period, the share of automotive sector in automotive sector investments more attractive. all sectors appears as 5.6% in the period subsequent to the announcement of the new incentive system (June - December 2012). Graphics: Information about investment incentive certificates granted to the automotive sector 1% 1% 7% 4%1% 7% 4%1% 7% 4%7% 4%

6% 6% 6% 6%

5% 5% 5% 5%

3% 3% 3% 3% 6% 6% 6% 6% 2% 2% 2% 2%

3% 3% 5% 3% 5% 3% 5% 5% 8% 8% 8% 8%

Number

30% 30% of the 30% 30%Incentive

14% 14% 14% 14% Certificates

58% 58% 58% 58%

Issued

Fixed 84% Investment84% Amount

84% 84%

89% 89% 89% 89%

75% 75% 75% 75% 3% 3% 6% 3% 6% 2% 3% 2% 6% 6% 2% 2%

5% 5% 6% 5%6% 5% 6% 6% 14% 14% 14% 14%

Employment (Person)

Abdulkadir Kahraman KPMG Turkey Head of Tax, Partner

75% 75% 75% 75%

ZONE 1 ZONE 2 1. 1. 1. 1.Bölge Bölge Bölge Bölge 2. 2. 2. 2.Bölge Bölge Bölge Bölge

Imported Machine 89% Equipment89% Amount

89% 89%

ZONE 3 ZONE 4 6. ZONE 5 6. 6. 6. Bölge Bölge Bölge Bölge 3. 3. 3. 3.Bölge Bölge Bölge Bölge 4. 4. 4. 4.Bölge Bölge Bölge Bölge

1. Bölge 1. Bölge 2. Bölge 2. Bölge Bölge 6. Bölge 3. Bölge 3. 4. Bölge 4. 6. Bölge Bölge 1. Bölge 1. 2. Bölge Bölge 2. Bölge Bölge 6. Bölge 3. Bölge 3.4.Bölge Bölge 4.6.Bölge

1 For more information, please see our article “New Investment Incentive System with Questions and Answers” on the website http://www.kpmgvergi.com under the section of “Publications”.

Industry

36

The Journey of The Turkish Automotive Sector into the Future

Industry: OSD Projections related to Manufacturing figures What are your next five years’ projections related to the manufacturing figures of Turkish automotive industry, where total manufacturing quantity realized as 1.1 million and total manufacturing capacity emerged as 1.5 million in 2011? We looked into the expectations of Turkey in this period when economic and financial crises are widespread in the world and in Europe, particularly affecting the automotive sector. OSD members are sure that manufacturing in Turkey will advance. However, their ideas differ in the extent of the increase. On the other hand, 70% of the respondents expect the increase to exceed 200 thousand in quantity, 18% in other words, in the next five years.

OSD members note that manufacturing figures in Turkey will continue to escalate.

Manufacturing expectations of automotive industry for the next 5 years

9,1%

Expected to decrease

Ho w

90,9%

m uc ht oi nc re as e?

Expected to increase

40%

30%

will be around 1.1-1.3 million

30%

will be around 1.3-1.5 million

will be around 1.5-1.7 million

The Journey of The Turkish Automotive Sector into the Future

37

Industry: OSD Projections related to Capacity figures What are your next five years’ projections related to the capacity figures of Turkish automotive industry, where total manufacturing quantity realized as 1.1 million and total manufacturing capacity emerged as 1.5 million in 2011? We looked into how the capacity in Turkey will develop assuming that there is overcapacity in the world and Europe. Capacity rates are expected to increase; but when we compare them to manufacturing expectations, the rate of people expecting this rate to increase is lower with 73%. On the other hand, it seems that there is no serious upward trend in those indicating an expectation for the increase. The majority with a rate of 63% believe that the increase will be 200 thousand at most, 13% in other words.

The capacity in Turkey is predicted to increase moderately.

Capacity expectations of automotive industry for the next 5 years

63% 9,1%

18,2%

Artacak Expected to increase Azalacak Expected to decrease 72,7%

Fikrim Yok No idea

25%

12%

will be around 1.5-1.7 million

will be around 1.7-1.9 million

will be around 1.9-2.1 million

38

The Journey of The Turkish Automotive Sector into the Future

Industry: OSD Determining issues for new investments What are the determining factors for attracting new investments to Turkey? New investments to Turkey are frequently discussed. We asked OSD members which issues foreign investors must take into account in an environment where new investors are targeted to be drawn into Turkey. According to the results of the survey, there are three main determining issues for attracting foreign investments to Turkey: investment incentives, sector infrastructure/supplier quality and labor productivity/manufacturing quality.

Incentives, infrastructure/ supplier and manufacturing capacity rank in priority among the determinant issues for a new investment to come to Turkey

Determining issues to attract new investments in Turkey*

72,7%

72,7%

63,6%

27,3%

18,2%

9,1%

Investment incentives

Automotive sector infrastructure/supplier quality

Labor productivity / manufacturing quality

(*) Participants could choose more than one option.

EU-Turkey customs union (for countries other than EU countries)

Domestic market increase

Geographic factors

The Journey of The Turkish Automotive Sector into the Future

39

Industry: OSD Requirements for new investments What actions must be taken to attract new foreign investments in Turkey? Turkey has acquired a serious position in the automotive sector on global scale. It ranks the seventeenth in the world automotive industry. Automotive supplier industry has a stubborn infrastructure. We searched for what actions must be taken to attract more investments to Turkey intending to advance and strengthen its position. Respondents think that incentive and investment environment should be improved in order to attract new foreign investment. It is interesting that participation of supplier industry in global projects is enlisted on the second rank. Domestic market growth is not paid much attention as per this issue.

It is noted that the incentive and investment environment must be improved and supplier industry must participate more in global projects for new foreign investments.

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

Improvement of incentive and investment environment

72,7%

Long-term increment of their cooperation with Turkish supply industry brands in global projects

63,6%

Reasonable and applicable expectations about productivity improvements; increasing productivity level

54,5% 36,4%

Enhancement of cooperation in R&D Enhancement of cooperation in supply chain Domestic market increase

27,3% 9,1%

(*) Participants could choose more than one option.

Insight Domestic market potential is an important factor in attracting new investments to automotive industry. P. cars market has an average of 427 thousand and total market is around 699 thousand in the last 12 years. Domestic manufacturing share is around 40% in the market. Evaluation of the last 12 years’ development covering 2002-2012 is significant in terms of developments related to future. While total manufacturing capacity increased by 1.66 folds, manufacturing increased by 3.09 folds in this period.

This increase is noted to emerge from excessive use of the current capacity instead of new investments. The Capacity Utilization Rate which decreased to 30% due to 2001 crisis increased up to 89% in 2007 and 75% in 2012. On the other hand, motor vehicle export has been the most important facilitator of manufacturing boom with an increase by 2.80 folds in this period. It is observed that export makes up 50% of the capacity in p. cars and 77% in light commercial vehicles in 2012.

While exports made 23% of the manufacturing in 2000, its share rose up to 79% in 2008 and decreased again to 67% in 2012. A balanced tax policy indexed to demand must be created in order to maintain a steady increase in the market for the future. I believe that strong demand structure in the domestic market will positively affect the global competitive power.

Prof. Dr. Ercan Tezer OSD, General Secretary

40

The Journey of The Turkish Automotive Sector into the Future

Industry: OSD Evaluations related to overcapacity in Europe How will Turkey be affected by the overcapacity in Western Europe in your opinion? Considering that Turkey is a manufacturing center for Europe and targets this position under the current conditions where it is discussed that there is overcapacity in Europe, we inquired how Turkey will be affected. Respondents are sure that Turkey will be adversely affected by the overcapacity in Europe and expect these adverse effects to emerge in five years. However, this reply seems to be contradictory when compared to the projections of manufacturing and capacity increase in Turkey. When we evaluate these responses all together, we conclude that if there had not been overcapacity in Europe, manufacturing and capacity in Turkey would increase even more.

Turkey will be adversely affected by the overcapacity in Western Europe in the following 5 years.

Impact of overcapacity in the Western Europe on Turkey

9,1%

Will be affected adversely Olumsuz Yönde Etkilenir Etkilenmez Will not be affected

In wh ich pe rio d?

90,9%

10%

5-10 yıl içerisinde In 5-10 years Önümüzdeki yıl içerisinde In the next 55 years

90%

The Journey of The Turkish Automotive Sector into the Future

Industry: OSD Strategies for growth in the automotive industry New products and technologies must be preliminarily developed for the growth of the automotive industry.

What should be the main strategies of companies to ensure growth in the Turkish automotive industry? We looked into what kind of strategy manufacturers in Turkey should follow in order to be successful under the conditions gradually becoming more difficult on the global scale and in Europe. Participants indicate that the most beneficial strategies for growth in the automotive sector are developments of new products and/or technologies and enhancement of the capacity to meet total costs. It is noteworthy that penetration into new markets is enlisted only on the third rank.

Main strategies necessary for ensuring growth in the automotive industry

3%

27,3% 27,3% 27,3%

19,7% 19,7% 19,7%

12,2% 10,6% 10,6% 10,6% 7,6% 7,6% 7,6% 13,6% 13,6% 13,6%12,2% 12,2%

3% 3%

1,5% 1,5% 1,5%

4,5% 4,5% 4,5% Yeni ve // veya teknolojiler geliştirmek Developing products technologies Yeni ürünler Yeni ürünler ürünler ve / new veya ve teknolojiler veya and/or teknolojiler geliştirmek geliştirmek Toplam maliyetleri karşılama gücünü arttırmak Increasing the capacity to meet total costs ToplamToplam maliyetleri maliyetleri karşılama karşılama gücünügücünü arttırmak arttırmak Yeni pazarlara girmek To penetrate into new markets Yeni pazarlara Yeni pazarlara girmek girmek Ürün portföyünü çeşitlendirmek To diversify product portfolio Ürün portföyünü Ürün portföyünü çeşitlendirmek çeşitlendirmek

Marka geliştirmek To develop brand yönetimini management Marka yönetimini Marka yönetimini geliştirmek geliştirmek

Çözümleri diğer sektörlerle/yeni iş To integrate solutions with other sectors new business models Çözümleri Çözümleri diğer sektörlerle/yeni diğer sektörlerle/yeni iş/ modelleriyle iş modelleriyle modelleriyle entegreentegre entegre etmek etmek etmek Şirket satın yoluyla Growth company acquisitions Şirket through satın Şirket almaları satın almaları almaları yoluyla yoluyla büyümebüyüme büyüme ve satış teşvikleri sağlamak To obtain price sales incentives Fiyat veFiyat Fiyat satışand ve teşvikleri satış teşvikleri sağlamak sağlamak Yerli ortağı devreden Pass domestic shareholder Yerlibyortağı Yerlidevreden ortağı devreden çıkarmaçıkarma çıkarma

41

42

The Journey of The Turkish Automotive Sector into the Future

Industry: TAYSAD New Investment Incentives System If one of the following strategic investments came to Turkey with the new incentives system, which strategy would create the most positive impact on the automotive industry in your opinion? We looked into the most important issues for the automotive supplier industry with respect to the new investment incentives system of Turkey and its target to attract strategic investments. Results focus on engine and gearbox as strategic investment to create the most positive impact for the Turkish automotive industry. The fact that hybrid, electric and other environment friendly vehicle technologies rank the second with a big difference points out that these technologies are not trusted much recently.

Engine and gearbox is considered as the most important strategic investment for the automotive supplier industry.

Strategic investments which appear to be promising for the automotive industry

55,7%

17,1% 11,4%

11,4% 4,4%

Engine, Motor gearbox şanzıman

Hybrid, electric Hibrit, and other elektrikli ve environment diğer çevreci friendly vehicle araç teknolojileri technologies

Raw material Hammadde

Electric, Elektrik Electronic Elektronik

No Idea Fikrim Yok

The Journey of The Turkish Automotive Sector into the Future

43

Industry: TAYSAD Attracting foreign investments to Turkey Which actions must be taken to attract new foreign investments to Turkey? If asked which issues Turkey, with a strong supplier industry, paid attention to for purposes of attracting more foreign investments, respondents stated that incentive and investment conditions must be improved at first. Industrialists seem to agree on this issue; TAYSAD and OSD members note that the most important issue is the improvement of incentive and investment environment.

OEMs and suppliers are of the same opinion concerning new investments: Incentive and investment environment must be improved and supplier industry must be more involved in global projects.

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

ve yatırım ortamının iyileştirilmesi Improvement Teşvik of incentive and investment environment

68,6%

projelerde yan sanayii firmaları Long-termKüresel increment of theirTürk cooperation with Turkish ile işbirliklerinin uzun in vadeli artırılması supplier industry brands global projects

65,7%

Ar-Ge konusundaof işbirliğinin artırılması Enhancement cooperation in R&D

52,9%

Enhancement of cooperation in supply chain Tedarik zinciri içinde işbirliklerinin artırılması

37,1%

Verimlilik indirimleri konusundaki beklentilerin gerçekçi ve Reasonable and applicable expectations about productivity improvements; increasing productivity level uygulanabilir olması, verimlilik düzeyinin artırılması İnsan kaynağı transferi etik yaklaşım sergilenmesi Ethicalkonusunda approach to human resource transfer

22,9%

12,9%

(*) Participants could choose more than one option.

Insight Automotive suppliers generally agree on the fact that “Improvement of Incentive and Investment Conditions” is the most influential factor in attracting new foreign investors into our country. Seven out of 10 people note that incentives are important for drawing attention particularly of Original Equipment Manufacturers’ investments to Turkey. In foreign supplier industry investments, improvement of investment conditions take precedence as much as the incentives. By improving conditions affecting investment environment such as particularly

reducing bureaucracy, increasing training opportunities for educated and qualified employees and developing transportation infrastructure, it is considered that more supply firms will be active in our country. Automotive supply industrialists think that their participation in global projects of OEMs resident in our country will attract foreign investors with a slight difference subsequent to the investment provision. Suppliers claim that further participation in global projects will require investments in those countries as well as growth in central manufacturing

facilities of the companies and thus they expect that foreign investors will show favor to the growing business volume. Another point is the enhancement of cooperation in the supply chain. In this context, automotive suppliers have developed models like clusters until today and raised their cooperation levels through different Non-Governmental Organizations. At this point, it is clear that such cooperation models should be increased; more investors will pay attention to our country in this means.

Alper Kanca TAYSAD, Deputy Chairman

44

The Journey of The Turkish Automotive Sector into the Future

Industry: TAYSAD Focus of interest for supplier industry

Which areas should the supplier industry focus on the most in medium term? The Turkish automotive supplier industry is very strong, but when we inquire about what the industry should do to continue this success under ever-changing global competition conditions, the supplier industry seems to be clear that the area of focus must be R&D in the following years. It is intriguing that being a global player is in the end of the list.

Research and development stands out as the most important issue in the medium term for the supplier industry.

Areas of focus for the supplier industry in medium term

R&D

38,7%

Human resource

13,1%

Corporate management

12,2%

Strategic planning

9,5%

Quality

8,6%

Marketing

4,5%

Finance

3,6%

Manufacturing

3,3%

Logistics

2,9%

Purchasing

2,1%

Sale

1,0%

Being a global player

0,5%

0

5

10

15

20

25

30

35

40

The Journey of The Turkish Automotive Sector into the Future

45

Industry: TAYSAD Issues to affect relations between OEMs and supplier What are the issues that affect the relations of OEM supplier relations at most in the medium term? Success in the Turkish automotive industry will be attained not only through the efforts of supply or OEMs, but joint efforts of both parties. We looked into the key issues to bring success in this cooperation. The results of the survey point out that participants are sure about three issues to affect OEM supplier relations: • Increasing cooperation in R&D • Increasing cooperation in global projects

In relations with the OEMs, efficiency as well as Research and Development and global projects carry importance.

• Demands for productivity improvements

Issues that will affect the relations of OEM supplier relations at most in the medium term?

Ar-Ge alanında işbirliğinin artması Increasing cooperation in R&D

31,5%

Küresel projelerde işbirliğinin Increasing cooperation in globalartması projects

28,6%

Verimlilik indirimireductions talepleri Demands for productivity

27,9%

Tedarikchain zinciri yönetimi Supply management

7,9%

Human resource transfer İnsan kaynağı transferi

1,7%

Logistic services Lojistik hizmetler

1,7%

VehicleAraç manufacturers’ quoting ethical profitvermesi margins üreticisinin etik kar marjları

0,7%

Insight Establishing a strong domestic market is the most important issue to advance the current status of the automotive sector today. Failure of the domestic market put under pressure with high tax rates in making use of its dynamics stands as the biggest barrier before the growth. This condition also adversely

affects our competitiveness in global markets. Unplanned and snap increases in tax rates carry a high risk in terms of stability for global and domestic investors. As Turkish automotive industry, our focusing on niche segments appropriate to our successes in the list of light commercial vehicle and bus manufacturing

in global markets will be useful for our competitiveness. Another significant issue emphasized by the association is increasing domestic contribution rate. We think that the arrangements about the New Investment Incentives will be useful in this issue. Mustafa Zaim TAYSAD, Deputy Chairman

46

The Journey of The Turkish Automotive Sector into the Future

Industry: TAYSAD Regions where cooperation of suppliers is expected to increase In which areas do you think our subsidiary industry will increase cooperation in medium term? In the gradually globalizing environment of the automotive industry and automotive supplier industry, we looked into the target countries in consideration of the ever increasing importance of Turkey and Turkish automotive companies in the region and globally. Russia’s ranking the first as the reply to this question under the current conditions where automotive world talks about China are an indicator of the potential between these two countries. Eastern Europe countries’ listed on the second rank emerges as the indicator of Turkey’s role in the region and target to increase its significance.

For the supplier industry, Russia is projected to be the most important region for cooperations.

Regions where suppliers will increase its contributions the most in the medium term

Russia Rusya

37,5%

Eastern Europe Countries Doğu Avrupa Ülkeleri

18,8% 16,6%

China Çin Africa Afrika

8,7%

Brazil Brezilya

5,8%

India Hindistan

5,5% 5%

NorthAmerika America Kuzey South Korea Güney Kore

Western Europe Batı Avrupa

1,1% 1%

Türkiye Otomotiv Sektörünün Geleceğe Yolculuğu

KPMG Insight Russian Automotive Sector is on the Rise The automotive industry in Russia is one of the fastest growing industries in the country. In terms of sales of vehicles, Russia is expected to become the largest automotive market in Europe, surpassing Germany, over the next few years. What is fueling consumer spending are a relatively old car park, low car density, a growing middle class, large population with low unemployment and relatively high disposable incomes as well as increasing opportunities for obtaining car financing. On the production side, Russia remains a significant net importer of vehicles with no export of significance. However, production capacity has significantly increased over the past few years as a result of not just the underlying market demand but also government interventions offering tax and import duty relief provided significant production and localization of components in Russia takes place. The Russian automotive suppliers have been lacking behind on latest technology and reliability. Furthermore, the market presence in Russia of the largest (foreign) global suppliers has been relatively minor. Therefore, with the manufacturers increasing and upgrading their production in Russia, many suppliers have entered the Russian market recently. Within the last couple of years, the market presence in Russia of the global top 50 suppliers has increased from approximately 40% to 60% (in comparison almost 100% has operations

in China). This development is expected to continue hand in hand with the growing production capacity. The Russian automotive market provides a wealth of opportunities for Turkish automotive suppliers. The localization is still very much ongoing and the need for reliable suppliers providing quality products is still in high demand. Significant activities relating to development of production sites are still observed in automotive clusters such as in the Moscow regions, St. Pete regions, Tatarstan, Kaliningrad, etc. where we undoubtedly will see significant investments and increased production capacity over the coming years as well.

Ulrik Andersen KPMG Russia Head of Automotive, Audit Partner

Murat Karakaş KPMG Russia, Audit Partner

47

48

The Journey of The Turkish Automotive Sector into the Future

Acknowledgement Ali Bilaloğlu ODD, Vice Chairman Alper Kanca TAYSAD, Vice Chairman Hayri Erce, Ph.D. ODD, Executive Coordinator Dr. Mehmet Dudaroğlu TAYSAD, Chairman H. Şükrü Ilısal OYDER, Chairman Kudret Önen OSD, Chairman Mustafa Bayraktar ODD, Chairman Mustafa Zaim TAYSAD, Vice Chairman Özgür Tezer OYDER, General Secretary Prof. Dr. Ercan Tezer OSD, General Secretary Vedat İnciroğlu OYDER, Vice Chairman

Abdulkadir Kahraman KPMG Turkey Head of Tax, Partner Ekrem Özer KPMG Turkey Advisory, Director Fikret Çetinkaya KPMG Turkey Tax, Partner Keith Durward KPMG Turkey Head of Advisory, Partner Mathieu Meyer KPMG Global Head of Automotive, Partner Murat Karakaş KPMG Russia Audit, Partner Ulrik Andersen KPMG Russia Head of Automotive, Audit, Partner

(Names are listed in alphabetical order.)

APPENDIX: Facts and Figures

50

The Journey of The Turkish Automotive Sector into the Future

Market

The Journey of The Turkish Automotive Sector into the Future

51

Global Motor Vehicles Sales 2012

Çin China

20.005

ABD USA

14.834

Japonya Japan

5.323

Brezilya Brazil

3.669

Hindistan India

3.552

Almanya Germany

3.379

Rusya Russia

3.068

England ngiltere

2.328

France Fransa

2.325

Italy talya

1.521

Thailand Tayland

1.403

Australia Avustralya

1.112

Indonesia Endonezya

1.013

Mexico Meksika

1.012

Iran ran

873

Argentina Arjantin

823

Turkey Türkiye

818

Spain spanya

793

South Africa G. Afrika

716

Malaysia Malezya

624

Belgium/Luxemburg Belçika/Lüks.

603

The Netherlands Hollanda

571 376

Chile ili

371

Taiwan Tayvan

360

0

Austria Avusturya

22.500

1.532

15.000

Korea Kore

7.500

1.678

Canada Kanada

Source: Monday. February 18.ODD 13

(x1000 piece)

x bin adet

2012 Yılı

52

The Journey of The Turkish Automotive Sector into the Future

Europe Automobile Market - 2012 Vehicle Sales (Passenger Cars and Light Commercial Vehicles) Germany England France Italy Turkey Spain The Netherlands Belgium Austria Switzerland Poland Sweden Denmark Czech Republic Norway Finland Portugal Ireland Romania Slovakia Hungary Greece Slovenia Luxembourg Bulgaria Estonia Lithuania Latvia Cyprus Iceland

3.394.002 2.333.763 2.331.733 1.534.073 817.620 790.991 571.885 550.519 374.829 363.423 329.803 326.441 199.148

Category Title

193.795 176.909 126.505 113.416 91.728 80.105 78.189 68.168 62.518 56.249 54.814 22.537 20.248 16.672 14.598 12.348 8.502

00  

500.000 500,000  

1.000.000 1,000,000  

1.500.000 1,500,000  

2.000.000 2,000,000  

2.500.000 2,500,000  

3.000.000 3,000,000  

3.500.000 3,500,000  

4.000.000 4,000,000  

Source: ODD

Europe Passenger Cars Market 2012 Sales Germany England France Italy Spain Turkey The Netherlands Belgium Austria Switzerland Poland Sweden Denmark Czech Republic Norway Finland Portugal Ireland Romania Slovakia Hungary Greece Slovenia Luxembourg Bulgaria Estonia Lithuania Latvia Cyprus Iceland

3.082.504 2.044.609 1.898.760 1.402.089 699.589 556.280 502.528 486.737 336.010 328.139 279.899 273.589 174.009 170.763 137.967 111.251 95.290 79.498 69.268 66.436 58.482 53.059 50.398 48.648 19.419 17.267 12.170 10.967 10.665 7.902 0

Source: ODD

500.000 500,000

1.000.000 1,000,000

1.500.000 1,500,000

2.000.000 2,000,000

2.500.000 2,500,000

3.000.000 3,000,000

3.500.000 3,500,000

The Journey of The Turkish Automotive Sector into the Future

53

Europe Light Commercial Vehicles Market 2012 January-December Sales France England Turkey Germany Italy Spain The Netherlands Belgium Sweden Poland Norway Austria Switzerland Denmark Portugal Czech Republic Finland Hungary Ireland Romania Slovenia Slovakia Greece Luxembourg Bulgaria Latvia Estonia Lithuania Cyprus Iceland

174

116.112 76.933 56.576 54,607 39.303 38.507 31.850 31.508 30.922 24.109 16.011 11.821 11.469 10.900 10.874 9.389 6.412 5.103 3.707 3.262 3.118 2.236 2.139 1.598 1.293 444

2003 2004 227 451 Source: ODD 171 290 398 741

0 0  

50.000 100.000 150.000 50,000   100,000   150,000   2005 2006 2007 2008 439 373 358 306 320 293 276 221 759 666 634 527

200.000 200,000   2009 370 206 576

250.000 250,000  

300.000 300,000   2011 594 317 911

2010 510 283 793

Total Automobile Sales in Turkey (2002-2012) and 2018 Projections 398 741 759 666 634 527 576 793

350.000 350,000  

911

2012 556 262 818

400.000 400,000   2013 608 312 920

450.000 450,000   2014 2015 682 761 338 366 1,019 1,127

2016 850 396 1,246

2017 947 413 1,360

818

920

1,019

1,246

1,360

1,127

2013-2018 Talep Tahminleri (x000 adet)* 1.600

1.500 1.360

1.400

1,246 1.127

1.200 (x000 piece)

2002 95 79 174

381.233 239.641 221.481 219.422

911

1.000 741

800 600

398

400 200 0

174 95 79 2002

451

227 290

666

634 527

439

373

320

358

293

276

171 2003

2004

2005

818

793

759

2006

2007

P. cars Market

306 221 2008

576

510

594

556

920

608

1.019

682

761

850

947

370

206 2009

283 2010

317 2011

262 2012

Commercial Vehicle Market

312 2013

338

2014

366

2015

396

2016

413

2017

1.050

450

2018

P. cars Market

* Gelir Artı ı %5,5, fiyat ve kredi hacmi artı ı sabit

Source: ODD - “Roadmap Demand Projections for Automotive Trade 2012-2018”(2013-2018 projections: Income Increase by 5.5%; price and credit volume increase is fixed).

The Journey of The Turkish Automotive Sector into the Future

54

Number of Motor Vehicles per 1000 people

1100 994

825 714

613

613

613

608 567

550

556

544 445

425 356

328

309 258

275

161

166

151

161

145 74

Global Average

64

Source: ODD

(x1000 piece)

Turkey Motor Vehicle Age Distribution (2011 Year-End)

14,000   (%$!!!"

12,000   (#$!!!"

 12,062  12.062  23%  23%

10,000   (!$!!!"  12%  12%

 8,113  8.113

 16%  16%

 25%  25%

8,000   '$!!!"

6,000   &$!!!"

 13%  13%

 21%  21%

 14%  14% 2,000   #$!!!"  15%  15% 0   !"

Source: ODD

 18%  18%

 17%  17%  8%  8%  15%  15%

 12%  12%

 26%  26%  18%  18%

 15%  15%

GENELTOTAL TOPLAM

1-3 YAŞ YEARS 1-3

 3.948 3,948 

 16%  16%

4,000   %$!!!"

 16%  16%

P. CARS OTOMOBİL 4-6 YEARS YAŞ

7-11YAŞ YEARS 7-11

YEARS 12-15 YAŞ

COMMERCIAL VEHICLE TİCARİ ARAÇ 16-19 YAŞ YEARS

++20 20 YEARS YAŞ

Western European

Eastern Europe

Global

India

China

Thailand

S.Africa

Turkey

Brazil

Romania

Russia

Korea

Malaysia

Bulgaria

Japan

Poland

Spain

England

France

Germany

USA

Italy

24

0

The Journey of The Turkish Automotive Sector into the Future

55

Passengers Cars and Light Commercial Vehicle Sales in Turkey (Brand Share Development)

Brand FORD FIAT VOLKSWAGEN RENAULT OPEL HYUNDAI TOYOTA CITROEN PEUGEOT DACIA MERCEDES-BENZ NISSAN CHEVROLET HONDA BMW AUDI KIA SKODA SEAT VOLVO MITSUBISHI ISUZU KARSAN SSANGYONG SUZUKI MINI IVECO LAND ROVER ALFA ROMEO TATA GEELY MAZDA DFM CHERY JEEP PROTON SUBARU PORSCHE LANCIA SMART JAGUAR INFINITI FERRARI MASERATI BENTLEY ASTON MARTIN AMBORGHINI SAAB CHRYSLER LADA DAIHATSU OTOKAR BMC DODGE TOTAL: Source: ODD

2012 Cumulativef Number 106.166 102.432 92.840 89.205 49.825 46.119 34.576 30.544 29.562 28.964 21.964 20.120 18.492 16.516 15.247 13.720 12.715 10.118 5.811 5.247 4.465 2.684 2.418 2.089 1.780 1.758 1.673 1.590 1.052 1.044 1.019 1.013 921 810 799 760 640 497 276 0,0 84 41 21 18 18 10 2 0 0 0 0 0 0 0 777.761

% 13,7 13,2 11,9 11,5 6,4 5,9 4,4 3,9 3,8 3,7 2,8 2,6 2,4 2,1 2,0 1,8 1,6 1,3 0,7 0,7 0,6 0,3 0,3 0,3 0,2 0,2 0,2 0,2 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,1 0,0 60 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 100.0

2011 Cumulative Number 133.277 128.869 81.911 119.488 54.437 49.005 37.996 30.439 34.915 21.339 21.025 20.319 23.610 13.309 15.018 12.064 10.494 7.590 6.059 4.662 8.042 2.909 3.027 1.896 1.340 1.735 1.833 2.139 898 1.857 1.405 1.848 3.407 2.045 888 1.113 761 442 178 60 168 102 23 24 10 20 6 0 47 10 379 0 0 1 864.439

2011 / 2012 Cumulative % 15,4 14,9 9,5 13,8 6,3 5,7 4,4 3,5 4,0 2,5 2,4 2,4 2.7 1.5 1.7 1.4 1.2 0.9 0.7 0.5 0.9 0.3 0.4 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.2 0.4 0.2 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0

% -20.3 -20.5 13.3 -25.3 -8.5 -5.9 -9.0 0.3 -15.3 35.7 4.5 -1.0 -21.7 24.1 1.5 13.7 21.2 33.3 -4.1 12.5 -44.5 -7.7 -20.1 10.2 32.8 1.3 -8.7 -25.7 17.1 -43.8 -27.5 -45.2 -73.0 -60.4 -10.0 -31.7 -15.9 12.4 55.1 60.0 -50.0 -59.8 -8.7 -25.0 80.0 -50.0 -66.7 0.0 -100.0 -100.0 -100.0 0.0 0.0 -100.0 -10.0

The Journey of The Turkish Automotive Sector into the Future

56

2012 Passenger Car Sales Distribution per Engine Volume 5.385

35.850 6% 1%

514.861 93%

2012 Ocak-Aralık/ Segment January -December/ Segmentation

<=1600 cc

A (Mini)

TOPLAM/ TOTAL 1601 1,458 cc <=2000 cc

B (Entry)

% >=2001 cc 0%

185,201

33%

285,816

51%

66,868

12%

14,758

3%

F (Upper Luxury)

2,179

0%

TOPLAM/TOTAL

556,280

C (Compact) Source: ODD D (Medium) E (Luxury)

%

100%

2012 Passenger Car Automobile Market Segment Distribution

60%

285.816

51,4% 50% 185.201

40%

33,3%

30% 66.868

20%

12,0% 10%

14.758

1.458

2,7%

0,3%

2.179

0,3%

0% A (Mini)

B (Entry)

C (Compact)

D (Medium)

E (Luxury)

F (Upper Luxury)

Source: ODD

12

The Journey of The Turkish Automotive Sector into the Future

57

Industry

58

The Journey of The Turkish Automotive Sector into the Future

Global Motor Vehicles Manufacturing 2012

Çin China

19.781 10.131

ABD USA

9.721

Japonya Japan 5.765

Almanya Germany 4.703

SouthG.Kore Korea

4.345

Hindistan India 3.186

Brezilya Brazil

2.887

Meksika Mexico Kanada Canada

2.407

Tayland Thailand

2.342

Rusya Russia

2.267

Fransa France

1.992

İspanya Spain

1.890 1.552

İngiltere England

1.312

Iran Iran CzechÇek Republic Cum.

1.096

Turkey Türkiye

1.073

Indonesia Endonezya

1.028

Slovakia Slovakya

798

Argentina Arjantin

737

Italy İtalya

667

Poland Polonya

651

SouthG.Afrika Africa

611

Malaysia Malezya

572

Belgium Belçika

529

Taiwan Tayvan

363 0 0  

Source: ODD

5.000 5000  

10.000 10000  

15.000 15000  

20.000 20000  

25000  

59

The Journey of The Turkish Automotive Sector into the Future

2012 Manufactures of Turkish Automotive Industry

FIRMS

P. CARS

%

LIGHT LORRY

%

LORRY

%

PICKUP TRUCK

%

BUS

%

MINIBUS

%

Minibus

%

TRACTOR

%

TOTAL

A.I.O.S.

0

0

2.258

79

0

0

521

0

166

3

0

0

1.818

44

0

0

4,763

B.M.C.

0

0

0

0

1.241

5

0

0

207

3

0

0

100

2

0

0

1.548

FORD OTOSAN

0

0

0

0

7.362

28

238.706

56

0

0

26.029

89

0

0

0

0

272.097

HATTAT TARIM

0

0

0

0

0

0

0

0

0

0

0

0

0

0

2.713

6

2.713

HONDA TURKEY

21.850

4

0

0

0

0

0

0

0

0

0

0

0

0

0

0

21.850

HYUNDAI ASSAN

86.976

15

0

0

0

0

0

0

0

0

0

0

0

0

0

0

86.976

KARSAN

0

0

3

0

1.002

4

11.180

3

0

0

3.255

11

8

0

0

0

15.448

M.A.N. TURKEY

0

0

0

0

0

0

0

0

1.134

18

0

0

0

0

0

0

1.134

M. BENZ TÜRK

0

0

0

0

16.666

63

0

0

3.336

52

0

0

0

0

0

0

20.002

OTOKAR

0

0

0

0

0

0

369

0

619

10

51

0

1.812

43

0

0

2.851

310.602

54

0

0

0

0

0

0

0

0

0

0

0

0

0

0

310.602

0

0

597

21

0

0

372

0

957

15

0

0

428

10

0

0

2.354

TOFAŞ

80.943

14

0

0

0

0

175.485

41

0

0

0

0

0

0

0

0

256.428

TOYOTA

76.925

13

0

0

0

0

0

0

0

0

0

0

0

0

0

0

76.925

0

0

0

0

0

0

0

0

0

0

0

0

0

0

39.542

94

39.542

577.296

100

2.858

100

26.271

100

426.633

100

6.419

100

29.335

100

4.166

100

42.255

100

1.115.233

OYAK RENAULT TEMSA GLOBAL

TÜRK TRAKTÖR TOTAL

LIGHT LORRY: GVW 3.5-12 Ton, LORRY: GVW 12 Ton and Up Source: ODD

Automotive Manufacturing and Capacity

MANUFACTURING

CAPACITY

CAPACITY USE

1.033.264

1.502.916

69

Truck

29.129

62,196

47

Bus

6.427

11.100

58

Minibus

4.158

6.732

62

F Tractor

42.255

54.996

77

1.115.233

1.637.940

68

Light Vehicles*

Total

* Light vehicles cover passenger cars, pickups and minibuses. Source: ODD

60

The Journey of The Turkish Automotive Sector into the Future

2012 Turkish Automotive Industry Export

6.067.964.588

8.223.513.061

31% 42%

18%

3.433.318.136

9%

1.600.063.372 Supply Yan Sanayii Industry

Truck - Light Kamyon-Kamyonet Truck

Passenger Otomobil Cars

Other Diğer

Source: ODD

2012 Exports of Automotive Industry Firms in Turkey

FIRMS

P. CARS

%

TRUCK

%

PICKUP TRUCK

A.I.O.S.

0

0

0

B.M.C.

0

0

189

7

FORD OTOSAN

0

0

613

23

HATTAT TARIM

0

% 0

BUS

%

MINIBUS

0

0

0

0

0

71

2

174.221

60

0

0

0

%

MIDIBUS

%

TRACTOR

%

TOTAL

0

943

80

0

0

943

81

0

0

0

0

0

341

16.315

99

0

0

0

0

191.149

0

0

0

0

0

0

0

0

0

0

0

0

859

6

859

HONDA TÜRKİYE

7.959

2

0

0

0

0

0

0

0

0

0

0

0

0

7.959

HYUNDAI ASSAN

67.453

16

0

0

0

0

0

0

0

0

0

0

0

0

67.453

KARSAN

0

0

6

0

10.980

4

0

0

0

0

8

1

0

0

10.994

M.A.N. TÜRKİYE

0

0

0

0

0

0

885

22

0

0

0

0

0

0

885

M.BENZTÜRK

0

0

1.824

68

0

0

2.230

55

0

0

0

0

0

0

4.054

OTOKAR

0

0

0

0

163

0

116

3

25

0

206

17

0

0

510

227.162

55

0

0

0

0

0

0

0

0

0

0

0

0

227.162

0

0

50

2

37

0

745

18

0

0

24

2

0

0

856

TOFAŞ

46.868

11

0

0

107.200

37

0

0

0

0

0

0

0

0

154.068

TOYOTA

63.549

15

0

0

0

0

0

0

0

0

0

0

0

0

63.549

0

0

0

0

0

0

0

0

0

0

0

0

14.572

94

14.572

412.991

100

2.682

100

292.601

100

4.047

100

16.421

100

1.181

100

15.431

100

745.354

OYAK RENAULT TEMSA GLOBAL

TÜRK TRAKTÖR TOTAL Source: ODD

The Journey of The Turkish Automotive Sector into the Future

61

Turkish Automotive Industry Manufacturing Capacity

İSTANBUL ANKARA

BURSA ESKİŞEHİR İZMİR

AKSARAY

ADANA

KIBRIS

Source: ODD

BMC 15,000 Commercial Vehicle 5,000 Passenger Vehicle

FORD 280,000 Commercial Vehicle 50,000 Passenger Vehicle

HONDA TURKEY 50,000 Automobile

HYUNDAI 100,000 Automobile 15,000 Commercial Vehicle 10,000 Passenger Vehicle

ISUZU 9,600 Commercial Vehicles 3,500 Passenger Vehicles

KARSAN 77,400 Commercial Vehicles 17,650 Passenger Vehicles

MAN 1,700 Passenger Vehicles

Mercedes Benz 14,500 Commercial Vehicles 4,000 Passenger Vehicles

OTOKAR 4,200 Commercial Vehicles 4,600 Passenger Vehicles

TEMSA 7,500 Commercial Vehicles 3,250 Passenger Vehicles

TOFAŞ 400,000 Automobiles

TOYOTA 150,000 Automobiles

OYAK RENAULT 360,000 Automobiles

62

The Journey of The Turkish Automotive Sector into the Future

Our Publications

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KPMG INTERNATIONAL

KPMG’s Global Automotive Executive Survey 2013

2012 Automotive Industry Outlook Survey:

KPMG’s Global Automotive Executive Survey 2013

Managing a multidimensional business model kpmg.com/automotive

2012 Automotive Industry Outlook Survey

Bullish Industry Faces Headwinds kpmg.com

AUTOMOTIVE NOW Issue 1/2012

Self-driving cars: The next revolution

Mobility of tomorrow The revolution on the road

kpmg.com | cargroup.org

Overcapacity: a rising threat Why virtually every segment will soon have too many vehicles

Automotive Now 2012 Editions

Samba on the factory floor How Brazil is shifting from a sales-only market to an export hub

Self-driving cars: The next revolution

Automotive Industry New Incentive System

KPMG TURKEY

Investment Incentive System Supports Provided Within The Scope Of Decree No. 2012/3305 On State Incentives In Investments

kpmg.com.tr kpmgvergi.com

Investment Incentive System in Turkey

The automotive industry has a fairly important prominence within Turkey’s 2023 vision. The industry is expected to produce 4 million vehicles per year and export 3 million vehicles per year. In 2023 the industry is expected to reach export levels of 75 Billion USD. The 2012/3305 numbered addendum regarding the new incentive system that came into force along with the “Decision Regarding Government Supports for Investments” with the Council Of Ministers’ Decree has brought a lot of changes and opportunities in automotive industry investments. In 2013 the Turkish government has introduced further new incentives for primary and sub-industry investments with the addendum of the 2013/4288 numbered Council Of Ministers’ Decree published in the Official Gazette on 15/02/2013. What does the new investment incentives offer to automotive industry investments? 1) Minimum Investment Amounts Have Been Decreased The minimum investment amounts required for the issue of incentive certificates have been decreased with the 2012/3305 numbered Decree in order to increase the number of investments that can benefit from the new incentive system. Accordingly; • In order companies to benefit from large-scale investments minimum investment amount in “Primary Industry Investments” required for large-scale investments has been decreased from 250 Million TL to 200 Million TL. Minimum investment amount required in “Sub-industry Investments” has also been decreased from 100 Million TL to 50 Million TL. • ➢ The investment amount in sub-industry investments in order companies to benefit from regional investment incentives in every region has been decreased 1 Million Turkish Liras. 2) Some important investments in automotive industry are included in “Priority Investment Incentive” Scope “Prioritized Investment” concept is among the most important changes brought by the new investment incentive regime. The “Prioritized Investments” are listed under 17th article of the 2012/3305 numbered Decree. Any investments within the scope of the prioritized investments are eligible to benefit from 5th region investment incentives regardless of the location of the investment. Companies will be eligible to benefit from the 6th region investment incentives only in

cases when the investment is implemented in the 6th Region. Investments implemented under this scope are provided very strong investment incentives. “Test centrals, wind tunnels and investments with similar qualifications”, which are of high importance for the automotive industry, are regarded as prioritized investment under the 2012/3305 numbered Decree. In addition very substantial and additional incentives have been introduced for primary and sub-industry automotive industry investments above certain amounts with the 15/02/2013 dated and 2013/4288 numbered Decree. Such investments are included within the scope of prioritized investment and they are: • “Primary Industry Investments” with minimum investment value of 300 Million Turkish Lira • “Engine Investments” with minimum investment value of 75 Million Turkish Lira • “Engine components, drive-trains and investments with regards to automotive electronics with these components” with minimum investment value of 20 Million TL As mentioned above, all investments implemented within this scope have the opportunity to benefit from incentives provided under the 5th Region investment incentives scheme as per the 2013/4288 numbered Decree regardless of the location of the investment.

Automotive Industry New Incentive System in Turkey

KPMG TURKEY

The New Investment Incentives in Turkey kpmg.com.tr kpmgvergi.com

New Investment Incentive System with Questions and Answers

Investment in Turkey

Contact Details Ergün Kış KPMG Turkey Head of Automotive Partner, Audit T:+90 216 681 9000 - 9173 E: [email protected]

Figen Tahiroğlu Würsching Corporate Communications and Marketing Senior Manager T:+90 216 681 9000 - 9114 E: [email protected]

Abdulkadir Kahraman Head of Tax Partner T:+90 216 681 9000 - 9519 E: [email protected]

Fikret Çetinkaya Tax Partner T:+90 216 681 9000 - 9254 E: [email protected]

Keith Durward Head of Advisory Partner T:+90 216 681 9000 - 9290 E: [email protected]

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