Boston, MA -- (SBWIRE) -- 07/05/2013 -- Weaknesses in domestic and export demand resulted in almost a 10% year-on-year (y-o-y) fall in Turkish vehicle production, to 1,072,978 during 2012, estimates from the country's autos association, OSD, have shown. Passenger car and commercial vehicle output declined by 9.8% y-o-y each, to 577,296 units and 495,682 units respectively during the year. On the back of our core view about continued pessimism in Europe - the country's main vehicle export destination - and only partial recovery in domestic demand, we forecast Turkish vehicle production to grow by a modest 3% y-o-y, to 1.1mn units, during 2013.

However, expectations of favourable conditions on both of these fronts over the longer term help us maintain our overall optimism for production segment in the country. The country's Customs Union with the EU will act as a further booster for Turkish-made vehicles. Accordingly, we forecast Turkish vehicle production to grow by a robust 7% y-o-y on average during our forecast period to 2017.

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On the demand side, much of our expectations of a 6.6% y-o-y growth in vehicle sales during the forecast period rest on an anticipated resurgence in private consumption brought about by further monetary easing. The vehicle sales segment will also benefit from the improving business confidence in the market, which will lead to a nearly 9% y-o-y growth in commercial vehicle demand - on average - between 2013 and 2017.

We also see fuel-efficiency becoming an increasingly important concept in Turkey over the coming years. In March 2013, Turkey announced that it is to implement a new motor vehicle tax rate based on carbon emission levels. Currently, vehicle taxes are set on the basis of motor engine capacity and the age of the vehicle. We believe the new system will encourage drivers to choose cars with lower carbon emissions. However, we do not expect the policy change to have any bearing on domestic vehicle sales.

With Turkey having firmly positioned itself as a highly favourable market for production, export and domestic sales, it is not surprising that international carmakers continue to pour investments into the market. Mercedes-Benz Turk intends to spend around EUR40mn (US$53mn) on its Istanbul and Aksaray facilities in 2013, according to the unit's CEO, Wolf-Dieter Kurz. Meanwhile, Oyak-Renault Otombil Fabrikalari, a joint venture (JV) between French auto manufacturer Renault and Turkish military pension fund Oyak Group, is looking to boost production at its Bursa, Turkey, plant during the year.

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