With Europe and the United Kingdom getting hung up about the still unresolved Brexit issue, Turkish automotive manufacturers are looking for ways to protect trade with British buyers, indulging in an endeavor to stem the losses.
Turkey's Automotive Manufacturers Association (OSD) has evaluated the impact of Brexit, the divorce of the U.K. from the European Union, with 13 scenarios.
The worst-case scenario in which the U.K. strikes a deal with the EU but not with Turkey predicts that Turkish automotive exports will decrease by 70,000 to 72,000 vehicles and will directly and indirectly create a loss of $3 billion, according to a report by Turkish daily Hürriyet. This scenario also forecasts that 4,000 people working in the automotive sector will be unemployed.
OSD Chairman Haydar Yenigün stressed that the U.K. is one of the main export markets for the Turkish automotive industry, which is of high importance for the country's economy. "In 2017, the sector's exports to the U.K. totaled $2.25 billion, accounting for the 11.9 percent of the total automotive sales abroad. The subindustry exports were recorded at $474 million and corresponded to 4.8 percent of the total automotive exports," Yenigün said. The main industry exports to the U.K. included the sales of 52,994 automobiles – 7.2 percent of the total exports. Some 90,701 light commercial vehicles sales to the U.K. last year made up 22.3 percent of the total automotive exports.
In the automotive value chain in which Turkey is included, the U.K. has an important place, particularly in engine production, since the U.K. provided for 36 percent of Turkey's engine production in 2017.
The OSD head underscored that Brexit might cause cost increases in critically important inputs for the main automotive industry and yield a decrease in export figures.
"With Brexit still in muddy waters, considering all the uncertainties, we have evaluated 13 different scenarios discussing Brexit's impact on the Turkish automotive industry," Yenigün said. The scenarios analyzed the possible deals between the EU and the U.K. and Turkey's reaction to the new situation.
In the case of no deal, the date for inking a free trade agreement between Turkey and the U.K. will impact Brexit's effect on the Turkish automotive industry. In case no such agreement is reached, exports will drop by 48,000 to 50,000 units of vehicles. The demand shock Brexit will create in the automotive sector is also likely to wreak havoc on sales, manufacturing and competitiveness.
Currently, Turkish manufacturers enjoy the benefits of a customs union, which the country inked with the EU in 1996 in their exports to the union members. But since the U.K. has yet to outline a clear-cut agreement regulating trade with the EU after the Brexit – because British Prime Minister Theresa May's withdrawal agreement was rejected by the U.K. Parliament on Tuesday by a majority of 230 votes – Turkey also feels the urgency to conclude a free trade agreement with the country.
Yenigün said they proposed 23 policy recommendations in six areas to eliminate the negative effects of Brexit, noting that first of all the related ministries should determine the measures to be taken and conduct the negotiations in close cooperation and coordination with all relevant stakeholders, especially in the private sector. Citing the second area as taking urgent action to define the terms and conditions of a potential free trade agreement between Turkey and the U.K., Yenigün listed the remaining four policy areas as increasing the attractiveness of sectoral foreign direct investment and focusing on post-service support, raising the efficiency of customs, taking measures on motor vehicle certification and designing policies for market diversity and competitiveness in exports.
Yenigün said these six policy areas are important for maintaining and improving Turkey's competitive position. "The signing of a free trade agreement with the United Kingdom as fast as possible is a priority. In the case of a delay in this agreement, making agreements to ensure the continuation of the current situation in the transition process in sectors that are critical for both parties may reduce the negative effects of the exit," he added.